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Household debt and income inequality: evidence from Italian survey data

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  • David Loschiavo

    () (Bank of Italy)

Abstract

Does regional income inequality affect a household’s likelihood of being indebted? This question is addressed by using survey data on Italian households. The analysis shows that inequality in the regional income distribution has a negative effect on the probability of being indebted. In addition, richer households living in regions with greater income inequality have a greater likelihood of being indebted than similarly rich households residing in regions with low income inequality (and vice versa for poorer households). The study suggests that supply factors are more important than demand factors in explaining this result. These findings are consistent with the latest survey-based evidence drawn from US data which suggests that banks may use local income inequality and a household’s position in the income distribution to make inferences about an applicant’s underlying default risk. These results hold after controlling for socio-demographic differences, different types of debt, unobserved household heterogeneity using panel data and a number of robustness checks.

Suggested Citation

  • David Loschiavo, 2016. "Household debt and income inequality: evidence from Italian survey data," Temi di discussione (Economic working papers) 1095, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_1095_16
    as

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    More about this item

    Keywords

    income inequality; household debt; credit rationing; Great Recession; regional data;

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

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