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Household Debt and Financial Assets: Evidence from Great Britain, Germany and the United States

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Author Info
Sarah Brown ()
Karl Taylor ()

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Abstract

We explore the determinants of debt and financial asset accumulation at the household level using survey data for Great Britain, Germany and the United States (US). Given that debt and assets are both components of a household’s financial portfolio, we explore the degree of inter-dependence between households’ assets and liabilities by jointly modelling these two aspects of the portfolio. Indeed, our empirical findings for both countries support a high degree of inter-dependence between debt and asset holding. Furthermore, the nature of this inter-dependence varies across income ranges and age groups with the weakest correlation between financial assets and debt being found for the lowest income groups in Great Britain, suggesting that such groups may be particularly vulnerable to adverse financial shocks. Evidence supporting inter-dependence between assets and debt no longer remains, however, once we focus on debtors which suggests that households in debt may potentially face difficulties following adverse changes in their financial situation.

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Publisher Info
Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 05/5.

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Date of creation: Mar 2005
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Handle: RePEc:lec:leecon:05/5

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Postal: Department of Economics University of Leicester, University Road. Leicester. LE1 7RH. UK
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Related research
Keywords: Debt; Financial Assets; Household Financial Portfolio; Random Effects; Tobit Estimator;

Find related papers by JEL classification:
D14 - Microeconomics - - Household Behavior - - - Personal Finance
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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References listed on IDEAS
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  1. Alessandra Guariglia, 2001. "Saving behaviour and earnings uncertainty: Evidence from the British Household Panel Survey," Journal of Population Economics, Springer, vol. 14(4), pages 619-634. [Downloadable!] (restricted)
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    Other versions:
  3. Annette Vissing-Jorgensen, 2002. "Limited Asset Market Participation and the Elasticity of Intertemporal Substitution," NBER Working Papers 8896, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1996. "Income Risk, Borrowing Constraints, and Portfolio Choice," American Economic Review, American Economic Association, vol. 86(1), pages 158-72, March. [Downloadable!] (restricted)
    Other versions:
  5. Jappelli, Tullio & Pistaferri, Luigi, 2000. "Using subjective income expectations to test for excess sensitivity of consumption to predicted income growth," European Economic Review, Elsevier, vol. 44(2), pages 337-358, February. [Downloadable!] (restricted)
    Other versions:
  6. Lee, Byung-Joo, 1992. "A nested Tobit analysis for a sequentially censored regression model," Economics Letters, Elsevier, vol. 38(3), pages 269-273, March. [Downloadable!] (restricted)
  7. Orazio P. Attanasio & James Banks & Sarah Tanner, 2002. "Asset Holding and Consumption Volatility," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 771-792, August. [Downloadable!] (restricted)
    Other versions:
  8. Ana M. Aizcorbe & Arthur B. Kennickell & Kevin B. Moore, 2003. "Recent changes in U.S. family finances: evidence from the 1998 and 2001 Survey of Consumer Finances," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jan, pages 1-32. [Downloadable!]
  9. Lusardi, Annamaria, 1998. "On the Importance of the Precautionary Saving Motive," American Economic Review, American Economic Association, vol. 88(2), pages 449-53, May. [Downloadable!] (restricted)
  10. Tullio Jappelli & Luigi Pistaferri, 2002. "Incentives to Borrow and the Demand for Mortgage Debt: An Analysis of Tax Reforms," CSEF Working Papers 90, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
    Other versions:
  11. Leece, David, 1995. "Rationing, Mortgage Demand and the Impact of Financial Deregulation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(1), pages 43-66, February.
  12. Alessie, Rob & Lusardi, Annamaria, 1997. "Saving and income smoothing: Evidence from panel data," European Economic Review, Elsevier, vol. 41(7), pages 1251-1279, July. [Downloadable!] (restricted)
  13. Leece, David, 2000. "Choice of Mortgage Instrument, Liquidity Constraints and the Demand for Housing Debt in the UK," Applied Economics, Taylor and Francis Journals, vol. 32(9), pages 1121-32, July. [Downloadable!] (restricted)
  14. Crook, Jonathan, 2001. "The Demand for Household Debt in the USA: Evidence from the 1995 Survey of Consumer Finance," Applied Financial Economics, Taylor and Francis Journals, vol. 11(1), pages 83-91, February. [Downloadable!] (restricted)
  15. Howe, Charles W & Lee, Byung-Joo & Bennett, Lynne L, 1994. "Design and Analysis of Contingent Valuation Surveys Using the Nested Tobit Model," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 385-89, May. [Downloadable!] (restricted)
  16. Ling, David C. & McGill, Gary A., 1998. "Evidence on the Demand for Mortgage Debt by Owner-Occupants," Journal of Urban Economics, Elsevier, vol. 44(3), pages 391-414, November. [Downloadable!] (restricted)
  17. Annette Vissing-Jorgensen, 2002. "Limited Asset Market Participation and the Elasticity of Intertemporal Substitution," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 825-853, August. [Downloadable!] (restricted)
  18. Marjorie Flavin & Takashi Yamashita, 2002. "Owner-Occupied Housing and the Composition of the Household Portfolio," American Economic Review, American Economic Association, vol. 92(1), pages 345-362, March. [Downloadable!]
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