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The Effect of Household Debt Deleveraging on Unemployment Evidence from Spanish Provinces

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  • Watzka, Sebastian

Abstract

The Spanish economy is currently plagued by a deep recession with very high unemployment. We ask how much of the unemployment increase in Spain can be traced back to the debt deleveraging needs of Spanish households. We use provincial household debt and sectoral unemployment data and follow Mian and Sufi (2012) to isolate the effect of household debt on Spanish unemployment. We find that the level of household sector debt in Spanish provinces in 2007 is a highly significant determinant of the subsequent increase in provincial unemployment from 2007 to 2010. Our estimates indicate that approximately 1/3 of the increase in overall Spanish unemployment over that period can be traced back to high household debt levels.

Suggested Citation

  • Watzka, Sebastian, 2013. "The Effect of Household Debt Deleveraging on Unemployment Evidence from Spanish Provinces," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79853, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc13:79853
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    References listed on IDEAS

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    1. Steve Keen, 2009. "Household Debt: The Final Stage in an Artificially Extended Ponzi Bubble," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 42(3), pages 347-357, September.
    2. Gauti B. Eggertsson & Paul Krugman, 2012. "Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(3), pages 1469-1513.
    3. Frederic S. Mishkin, 1977. "What Depressed the Consumer? The Household Balance Sheet and the 1973-75 Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 8(1), pages 123-174.
    4. Thomas I. Palley, 1994. "Debt, Aggregate Demand, and The Business Cycle: an Analysis in the Spirit of Kaldor and Minsky," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 16(3), pages 371-390, March.
    5. Mishkin, Frederic S., 1978. "The Household Balance Sheet and the Great Depression," The Journal of Economic History, Cambridge University Press, vol. 38(4), pages 918-937, December.
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    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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