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The distribution of debt across euro area countries: The role of individual characteristics, institutions and credit conditions

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Author Info

  • Olympia Bover

    ()
    (Banco de España)

  • Jose Maria Casado

    ()
    (Banco de España)

  • Sonia Costa

    ()
    (Banco de Portugal)

  • Philip Du Caju

    ()
    (National Bank of Belgium, Research Department)

  • Yvonne McCarthy

    ()
    (Central Bank of Ireland)

  • Eva Sierminska

    ()
    (CEPS / INSTEAD Research Institute)

  • Panagiota Tzamourani

    ()
    (Bank of Greece
    Deutsche Bundesbank)

  • Ernesto Villanueva

    ()
    (Banco de España)

  • Tibor Zavadil

    ()
    (National Bank of Slovakia)

Abstract

The aim of this paper is twofold. First, we present an up-to-date assessment of the differences across euro area countries in the distributions of various measures of debt conditional on household characteristics. We consider three different outcomes: the probability of holding debt, the amount of debt held and, in the case of secured debt, the interest rate paid on the main mortgage. Second, we examine the role of legal and economic institutions in accounting for these differences. We use data from the first wave of a new survey of household finances, the Household Finance and Consumption Survey, to achieve these aims. We find that the patterns of secured and unsecured debt outcomes vary markedly across countries. Among all the institutions considered, the length of asset repossession periods best accounts for the features of the distribution of secured debt. In countries with longer repossession periods, the fraction of people who borrow is smaller, the youngest group of households borrow lower amounts (conditional on borrowing), and the mortgage interest rates paid by low-income households are higher. Regulatory loan-to-value ratios, the taxation of mortgages and the prevalence of interest-only or fixed-rate mortgages deliver less robust results.

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Bibliographic Info

Paper provided by National Bank of Belgium in its series Working Paper Research with number 252.

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Length: 83 pages
Date of creation: Dec 2013
Date of revision:
Handle: RePEc:nbb:reswpp:201312-252

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Keywords: Household debt and interest rate distributions; Time to Foreclose; Taxation; Loan-to-Value ratios; Fixed rate mortgages; Financial literacy;

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Cited by:
  1. Ehrmann, Michael & Ziegelmeyer, Michael, 2014. "Household risk management and actual mortgage choice in the euro area," Working Paper Series 1631, European Central Bank.

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