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Debt and Depression: Evidence on Casual Links and Social Stigma Effects

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  • John Gathergood

Abstract

Using individual-level panel data, this paper examines the relationship between problem debt and psychological health. Individuals exhibiting problem debt, by either subjective or objective measures, also exhibit much worse psychological health, by either subjective or objective measures. However, selection into problem debt on the basis of poor psychological health accounts for much of this difference. The causality between problem debt and psychological health may be two-way. Local house price movements exogenous to individual households are used to establish the causality from problem mortgage debt to psychological health. In addition, the social stigmas effects of problem debt are investigated using local bankruptcy and repossession rates as indicators of the local prevalence of problem debt in a reference group population. Results indicate there is a sizeable causal link between problem debt and psychological health and that reference group effects are also significant in magnitude.

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Paper provided by University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM) in its series Discussion Papers with number 11/10.

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Handle: RePEc:not:notcfc:11/10

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Keywords: debt; over-indebtedness; depression; reference group effects.;

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  1. Lindbeck, Assar & Nyberg, Sten & Weibull, Jörgen W., 1997. "Social Norms and Economic Incentives in the Welfare State," Working Paper Series 476, Research Institute of Industrial Economics.
  2. Andrew E. Clark, 2003. "Unemployment as a Social Norm: Psychological Evidence from Panel Data," Journal of Labor Economics, University of Chicago Press, vol. 21(2), pages 289-322, April.
  3. Vivian H. Hamilton & Philip Merrigan & Éric Dufresne, 1997. "Down and out: estimating the relationship between mental health and unemployment," Health Economics, John Wiley & Sons, Ltd., vol. 6(4), pages 397-406.
  4. Bridges, Sarah & Disney, Richard, 2010. "Debt and depression," Journal of Health Economics, Elsevier, vol. 29(3), pages 388-403, May.
  5. Reading, Richard & Reynolds, Shirley, 2001. "Debt, social disadvantage and maternal depression," Social Science & Medicine, Elsevier, vol. 53(4), pages 441-453, August.
  6. Andrew Benito, 2009. "Who Withdraws Housing Equity and Why?," Economica, London School of Economics and Political Science, vol. 76(301), pages 51-70, 02.
  7. Pamela Lenton & Paul Mosley, 2008. "Debt and Health," Working Papers 2008004, The University of Sheffield, Department of Economics, revised Apr 2008.
  8. Bartel, Ann & Taubman, Paul, 1986. "Some Economic and Demographic Consequences of Mental Illness," Journal of Labor Economics, University of Chicago Press, vol. 4(2), pages 243-56, April.
  9. Gardner, Jonathan & Oswald, Andrew J., 2006. "Money and Mental Wellbeing: A Longitudinal Study of Medium-Sized Lottery Wins," IZA Discussion Papers 2233, Institute for the Study of Labor (IZA).
  10. Frijters, Paul & Haisken-DeNew, John P. & Shields, Michael A., 2005. "The causal effect of income on health: Evidence from German reunification," Journal of Health Economics, Elsevier, vol. 24(5), pages 997-1017, September.
  11. Wildman, John, 2003. "Income related inequalities in mental health in Great Britain: analysing the causes of health inequality over time," Journal of Health Economics, Elsevier, vol. 22(2), pages 295-312, March.
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