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Household Debt and Social Interactions

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

Debt-induced crises, including the subprime crisis, are usually attributed exclusively to supply-side factors. We examine the role of social influences on debt culture, emanating from perceived average income of peers. Utilizing unique information from a household survey, representative of the Dutch population, that circumvents the issue of defining 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 employ a number of approaches to rule out spurious associations and to handle correlated effects.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9238.

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Date of creation: Dec 2012
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Handle: RePEc:cpr:ceprdp:9238
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