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Triggers and Determinants of Severe Household Indebtedness in Germany

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  • Matthias Keese
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    Abstract

    Overindebted private households have created economic and political concern. Using measures of relative (over-) indebtedness which relate household income and debt services to different concepts of subsistence levels, this paper investigates whether severe household indebtedness is driven by trigger events such as unemployment, childbirth, divorce, or the death of the partner. Exploiting the panel structure of the German Socio-Economic Panel (SOEP), the results suggest that children are likely to cause severe household indebtedness. Unemployment also worsens the relative debt situation mainly due to the associated income drop. Strokes of fate have no direct effect but if they come along with changes in household composition, the associated income shock increases the financial fragility of the household. Furthermore, a main determinant of relative overindebtedness is a home loan which raises doubts about whether families are indeed able to manage their housing finance.

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    Bibliographic Info

    Paper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers on Multidisciplinary Panel Data Research with number 239.

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    Length: 26 p.
    Date of creation: 2009
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    Handle: RePEc:diw:diwsop:diw_sp239

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    Keywords: household finance; debt; overindebtedness; SOEP;

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    1. David Laibson & Andrea Repetto & Jeremy Tobacman, 2000. "A Debt Puzzle," Documentos de Trabajo, Centro de Economía Aplicada, Universidad de Chile 80, Centro de Economía Aplicada, Universidad de Chile.
    2. Christa Fricke & Detlev Österreich & Eva Schulze & Gert G. Wagner, 2007. "Überschuldung ist ein Problem fehlender Netzwerke," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 74(7), pages 95-100.
    3. Ana del Río & Garry Young, 2005. "The determinants of unsecured borrowing: evidence from the British household panel survey," Banco de Espa�a Working Papers, Banco de Espa�a 0511, Banco de Espa�a.
    4. Ana Del-Rí­o & Garry Young, 2005. "The impact of unsecured debt on financial distress among British households," Bank of England working papers, Bank of England 262, Bank of England.
    5. Gianni Betti & Neil Dourmashkin & Mariacristina Rossi & Ya Ping Yin, 2007. "Consumer over-indebtedness in the EU: measurement and characteristics," Journal of Economic Studies, Emerald Group Publishing, Emerald Group Publishing, vol. 34(2), pages 136-156, May.
    6. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP): Scope, Evolution and Enhancements," SOEPpapers on Multidisciplinary Panel Data Research 1, DIW Berlin, The German Socio-Economic Panel (SOEP).
    7. DeVaney, Sharon A. & Lytton, Ruth H., 1995. "Household insolvency: A review of household debt repayment, delinquency, and bankruptcy," Financial Services Review, Elsevier, Elsevier, vol. 4(2), pages 137-156.
    8. Campbell, John, 2006. "Household Finance," Scholarly Articles 3157877, Harvard University Department of Economics.
    9. Silvia Magri, 2002. "Italian households' debt: determinants of demand and supply," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 454, Bank of Italy, Economic Research and International Relations Area.
    10. Annamaria Lusardi & Peter Tufano, 2009. "Debt Literacy, Financial Experiences, and Overindebtedness," NBER Working Papers 14808, National Bureau of Economic Research, Inc.
    11. Sarah Brown & Karl Taylor, 2008. "Household debt and financial assets: evidence from Germany, Great Britain and the USA," Journal of the Royal Statistical Society Series A, Royal Statistical Society, Royal Statistical Society, vol. 171(3), pages 615-643.
    12. Sarah Bridges & Richard Disney, 2004. "Use of credit and arrears on debt among low-income families in the United Kingdom," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 25(1), pages 1-25, March.
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    Cited by:
    1. Matthias Keese, 2010. "Who Feels Constrained by High Debt Burdens? – Subjective vs. Objective Measures of Household Indebtedness," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0169, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.

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