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Debt and financial expectations: an individual and household level analysis


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  • Sarah Brown
  • Karl Taylor
  • Gaia Garino


  • Stephen Wheatley Price


In this paper we show that optimistic financial expectations impact positively on both the uantity of debt and the growth in debt, at the individual and household levels. Our heoretical model shows that this association is predicted under a variety of plausible cenarios. In the empirical analysis we explore the determinants of debt and of growth in ebt using British data. We find convincing support for our theoretical priors and show that t is optimistic financial expectations per se that are important in influencing debt, rather han the accuracy of individuals’ predictions regarding their future financial situation.

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Bibliographic Info

Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 03/5.

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Date of creation: May 2003
Date of revision: Feb 2004
Handle: RePEc:lec:leecon:03/5

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Postal: Department of Economics University of Leicester, University Road. Leicester. LE1 7RH. UK
Phone: +44 (0)116 252 2887
Fax: +44 (0)116 252 2908
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Keywords: Debt; Financial Expectations; Inter-temporal Consumption; Random Effects; Tobit Estimator;

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