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Determinants of US Household Debt: New Evidence from the SCF

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  • Wildauer, Rafael

Abstract

This paper investigates the factors driving US household borrowing up to 2007. Two popular explanations are tested: First, the expenditure cascades hypothesis based on the assumption of debt-financed expenditures driven by an increasingly polarised distribution of income (‘keeping up with the Joneses’) and second, the hypothesis of Minskyian households which identifies climbing real estate prices as the decisive factor in household debt accumulation (re-mortgaging in order to cash in on capital gains and rising loan-to-value ratios in property purchases). This paper develops a method for obtaining individual household borrowing figures despite the lack of a panel structure from the Survey of Consumer Finances (SCF); it is the first to use the high quality information the SCF provides to investigate the impact of shifts in the income distribution and asset prices on household borrowing. The findings indicate that it is the interaction between the concentration of income at the top of the distribution and rising real estate prices which explains a large fraction of the increase in household borrowing prior to 2008. Therefore, neither the expenditure cascades hypothesis nor the hypothesis of Minskyian households are, in isolation, sufficient in order to understand household debt accumulation and thus the paper calls for a synthesis: future research should analyse the role of the distribution of income and asset prices together rather than separately.

Suggested Citation

  • Wildauer, Rafael, 2016. "Determinants of US Household Debt: New Evidence from the SCF," Greenwich Papers in Political Economy 18277, University of Greenwich, Greenwich Political Economy Research Centre.
    • Handle: RePEc:gpe:wpaper:18277
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    Cited by:

    1. Ying’ai Piao & Meiru Li & Hongyuan Sun & Ying Yang, 2023. "Income Inequality, Household Debt, and Consumption Growth in the United States," Sustainability, MDPI, vol. 15(5), pages 1-13, February.
    2. Suhal Kusairi & Suriyani Muhamad & M Musdholifah & Shu-Chen Chang, 2019. "Labor Market and Household Debt in Asia Pacific Countries: Dynamic Heterogeneous Panel Data Analysis," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 10(02), pages 1-15, June.
    3. Paravee Maneejuk & Sopanid Teerachai & Atinuch Ratchakit & Woraphon Yamaka, 2021. "Analysis of Difference in Household Debt across Regions of Thailand," Sustainability, MDPI, vol. 13(21), pages 1-24, November.
    4. Dögüs, Ilhan, 2016. "A Minskyan criticism on the shareholder pressure approach of financialisation," ZÖSS-Discussion Papers 53, University of Hamburg, Centre for Economic and Sociological Studies (CESS/ZÖSS).
    5. Dögüs, Ilhan, 2019. "Consumption dispersion between white-collar and blue-collar workers and rising market concentration in the USA: 1984-2011," ZÖSS-Discussion Papers 72, University of Hamburg, Centre for Economic and Sociological Studies (CESS/ZÖSS).
    6. Adél Bosch & Matthew Clance & Steven F. Koch, 2022. "Household debt and consumption dynamics A non-developed world view following the financial crisis," Applied Economics, Taylor & Francis Journals, vol. 54(8), pages 897-917, February.

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    Keywords

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    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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