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Household debt and social interactions

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  • Georgarakos, Dimitris
  • Haliassos, Michalis
  • Pasini, Giacomo

Abstract

Debt-induced crises, including the subprime, are usually attributed exclusively to supply-side factors. We uncover an additional factor contributing to debt culture, namely social influences emanating from the perceived average income of peers. Using unique information from a representative household survey of the Dutch population that circumvents the need to define the social circle, we consider collateralized, consumer, and informal loans. We find robust social effects on borrowing - especially among those who consider themselves poorer than their peers - and on indebtedness, suggesting a link to financial distress. We check the robustness of our results using several approaches to rule out spurious associations and handle correlated effects. --

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Paper provided by Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt in its series SAFE Working Paper Series with number 1.

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Date of creation: 2013
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Handle: RePEc:zbw:safewp:1

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Keywords: Household finance; household debt; social interactions; mortgages; consumer credit; informal loans;

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The social pressure of overborrowing
    by Economic Logician in Economic Logic on 2013-07-01 13:51:00
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Cited by:
  1. Brown, Sarah & Ghosh, Pulak & Taylor, Karl, 2014. "Household Finances and Social Interaction: Bayesian Analysis of Household Panel Data," IZA Discussion Papers 8301, Institute for the Study of Labor (IZA).
  2. Amrei M. Lahno & Marta Serra-Garcia, 2012. "Peer Effects in Risk Taking," CESifo Working Paper Series 4057, CESifo Group Munich.
  3. Fares Al-Hussami & Álvaro Martín Remesal, 2012. "Current Account Imbalances and Income Inequality: Theory and Evidence," Kiel Advanced Studies Working Papers, Kiel Institute for the World Economy 459, Kiel Institute for the World Economy.
  4. Haliassos, Michalis & Jansson, Thomas & Karabulut, Yigitcan, 2014. "Incompatible European partners? Cultural predispositions and household financial behavior," SAFE Working Paper Series 58, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.

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