Advanced Search
MyIDEAS: Login

A Tale of Two Surveys: Household Debt and Financial Constraints in Australia

Contents:

Author Info

  • Gianni La Cava

    (Reserve Bank of Australia)

  • John Simon

    (Reserve Bank of Australia)

Abstract

Over the past decade, household debt (as a share of household income) has reached historically high levels. This has raised concerns about whether, as a result of the rise in debt, households are now more financially ‘fragile’. Using data from the 1998/99 Household Expenditure Survey (HES), a logit model is constructed to examine the relationship between the probability of being financially constrained and the economic and demographic characteristics of households in Australia. We find that the probability of a household being constrained is significantly affected by demographic and economic variables such as age, marital status, home ownership, weekly household income, the proportion of income earned from interest, and the share of income going to repayments on mortgage debt. Unfortunately, however, we cannot separately identify households with investor housing debt and so cannot examine the relationship between this component of household debt and the probability of being financially constrained. We also apply the model to data from the 1993/94 HES and the 2001 Household, Income and Labour Dynamics in Australia (HILDA) Survey. Our results imply that the overall proportion of households who are financially constrained in the economy has fallen or, at worst, remained unchanged between 1994 and 2001. Separating households into financially constrained and unconstrained groups, we find that much of the rise in debt appears to have been due to unconstrained households taking on more debt. As such, the rise in the aggregate debt to income ratio associated with owner-occupier mortgages appears to be the result of voluntary household choice rather than a result of increased household financial distress. Hence, the increase in owner-occupier mortgage debt has not been associated with an increase in the proportion of households who are financially constrained.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.rba.gov.au/publications/rdp/2003/pdf/rdp2003-08.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp2003-08.

as in new window
Length:
Date of creation: Jul 2003
Date of revision:
Handle: RePEc:rba:rbardp:rdp2003-08

Contact details of provider:
Postal: GPO Box 3947, Sydney NSW 2001
Phone: 61-2-9551-8111
Fax: 61-2-9551-8000
Email:
Web page: http://www.rba.gov.au/
More information through EDIRC

Order Information:
Web: http://www.rba.gov.au/forms/rdp-order-form/

Related research

Keywords: household debt; household surveys; households; liquidity constraints; HILDA; HES;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. John V. Duca & Stuart S. Rosenthal, 1993. "Borrowing constraints, household debt, and racial discrimination in loan markets," Research Paper 9312, Federal Reserve Bank of Dallas.
  2. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
  3. Fumio Hayashi, 1982. "The Effect of Liquidity Constraints on Consumption: A Cross-Sectional Analysis," NBER Working Papers 0882, National Bureau of Economic Research, Inc.
  4. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence," NBER Working Papers 2924, National Bureau of Economic Research, Inc.
  5. Cox, Donald & Jappelli, Tullio, 1993. "The Effect of Borrowing Constraints on Consumer Liabilities," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 197-213, May.
  6. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-46, April.
  7. repec:fth:harver:1435 is not listed on IDEAS
  8. Robert E. Hall & Frederic S. Mishkin, 1980. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," NBER Working Papers 0505, National Bureau of Economic Research, Inc.
  9. Little, Roderick J A, 1988. "Missing-Data Adjustments in Large Surveys," Journal of Business & Economic Statistics, American Statistical Association, vol. 6(3), pages 287-96, July.
  10. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244.
  11. Jappelli, Tullio & Pagano, Marco, 1989. "Consumption and Capital Market Imperfections: An International Comparison," American Economic Review, American Economic Association, vol. 79(5), pages 1088-1105, December.
  12. Nilss Olekalns, 1997. "Has Financial Deregulation Revived the Permanent Income/Life Cycle Hypothesis?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 30(2), pages 155-166.
  13. Jappelli, Tullio, 1990. "Who Is Credit Constrained in the U.S. Economy?," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 219-34, February.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Ellis Connolly, 2007. "The Effect of the Australian Superannuation Guarantee on Household Saving Behaviour," RBA Research Discussion Papers rdp2007-08, Reserve Bank of Australia.
  2. Yunyong Thaicharoen & Kiatipong Ariyapruchya & Titima Chucherd, 2004. "Rising Thai Household Debt: Assessing Risks and Policy Implications," Working Papers 2004-01, Economic Research Department, Bank of Thailand.
  3. Breunig, Robert & Cobb-Clark, Deborah A. & Gong, Xiaodong & Venn, Danielle, 2005. "Disagreement in Partners' Reports of Financial Difficulty," IZA Discussion Papers 1624, Institute for the Study of Labor (IZA).
  4. Ellis Connolly & Fiona Fleming & Jarkko Jääskelä, 2012. "Households' Interest-bearing Assets," RBA Bulletin, Reserve Bank of Australia, pages 23-32, December.
  5. Robert Breunig & Deborah Cobb-Clark & Xiaodong Gong & Danielle Venn, 2007. "Disagreement in Australian partners’ reports of financial difficulty," Review of Economics of the Household, Springer, vol. 5(1), pages 59-82, March.
  6. LAURA BERGER-THOMSON & ELAINE CHUNG & REBECCA McKIBBIN, 2010. "Estimating Marginal Propensities to Consume in Australia Using Micro Data," The Economic Record, The Economic Society of Australia, vol. 86(s1), pages 49-60, 09.
  7. Katherine Henderson & Grant M. Scobie, 2009. "Household Debt in New Zealand," Treasury Working Paper Series 09/03, New Zealand Treasury.
  8. Yunhee Chang & Ki Lee, 2006. "Household Debt and Marital Instability: Evidence from the Korean Labor and Income Panel Study," Journal of Family and Economic Issues, Springer, vol. 27(4), pages 675-691, December.
  9. Jonathan Crook & Stefan Hochguertel, 2007. "US and European Household Debt and Credit Constraints," Tinbergen Institute Discussion Papers 07-087/3, Tinbergen Institute.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:rba:rbardp:rdp2003-08. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Paula Drew).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.