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A Bigger House at the Cost of an Empty Fridge? The Effect of Households' Indebtedness on Their Consumption: Micro-Evidence Using Belgian HFCS Data

Author

Listed:
  • Philip Du Caju

    (National Bank of Belgium, Brussels, Belgium)

  • Guillaume Périlleux

    (Université libre de Bruxelles (SBS-EM : CEB and ECARES), Brussels, Belgium)

  • François Rycx

    (Université libre de Bruxelles (SBS-EM : CEB and DULBEA), IRES, humanOrg, GLO & IZA, Brussels, Belgium)

  • Ilan Tojerow

    (Université libre de Bruxelles (SBS-EM : CEB and DULBEA) & IZA, Brussels, Belgium)

Abstract

This paper investigates the potentially non-linear relation between households' indebtedness and their consumption between 2010 and 2014 in Belgium, using panel data from the two waves of the Household Finance and Consumption Survey. Unlike previous studies, we find a negative effect of households' indebtedness on their consumption, even in the absence of negative shock on their assets. Our findings suggest that, without such a shock, it is the day-to-day sustainability of the debt, rather than its overall sustainability, that leads households to reduce their consumption. We perform as well a threshold analysis, whose results suggest that households should not have a debt-service-to-income ratio greater than 30%. The effect appears to be robust to various specifications, to result from a trade-off between housing and consumption, and to be more prevalent among more fragile households.

Suggested Citation

  • Philip Du Caju & Guillaume Périlleux & François Rycx & Ilan Tojerow, 2021. "A Bigger House at the Cost of an Empty Fridge? The Effect of Households' Indebtedness on Their Consumption: Micro-Evidence Using Belgian HFCS Data," LIDAM Discussion Papers IRES 2021008, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:2021008
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    More about this item

    Keywords

    Households; Indebtedness; Consumption; Debt-Service-to-Income; Non-linear Heterogeneous Effects;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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