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Do Australian Households Borrow to Keep up with the Joneses?

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  • Kim Nguyen

    (Reserve Bank of Australia)

Abstract

I examine whether and how local income inequality affects household debt and its composition using household panel data for Australia from the Household, Income and Labour Dynamics in Australia Survey. I find that middle-income households without liquidity and credit constraints tend to borrow more for non-residential investment purposes as local income inequality rises, suggesting that they are trying to close the income gap. They also appear to try to close the consumption gap by accumulating more car debt with a rise in local income inequality. Both findings are consistent with households 'keeping up with the Joneses', but unlikely to have implications for macrofinancial stability given that households taking on debt appear well resourced.

Suggested Citation

  • Kim Nguyen, 2022. "Do Australian Households Borrow to Keep up with the Joneses?," RBA Research Discussion Papers rdp2022-06, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp2022-06
    DOI: 10.47688/rdp2022-06
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    income; inequality; household debt; financial stability;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D3 - Microeconomics - - Distribution
    • G5 - Financial Economics - - Household Finance

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