IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Relative Income and Indebtedness: Evidence from Panel Data

  • Michael D. Carr
  • Arjun Jayadev
Registered author(s):

    We examine patterns of indebtedness in the Panel Study of Income Dynamics, focusing on the period surrounding the housing bubble and its aftermath (i.e. 1999-2009). Leverage increased most quickly among lower income households during this period. We findnd that leverage grew faster for households with lower relative income compared to other households in similar demographic groups. We also find that changes in leverage for a given household were strongly associated with lower relative income within a state, controlling for own income. A one standard deviation increase in relative income is associated with a 50 to 100 percent increase in the growth in leverage. Together, these findings provide evidence for the thesis that the rising indebtedness of households in the U.S is related to high levels of inequality, and that `Veblen effects' whereby relative income matters for individual well-being and decisions may contribute to rising household indebtedness.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://repec.umb.edu/RePEc/files/2013_02.pdf
    Download Restriction: no

    Paper provided by University of Massachusetts Boston, Economics Department in its series Working Papers with number 2013_02.

    as
    in new window

    Length: 28 pages
    Date of creation: Sep 2013
    Date of revision:
    Handle: RePEc:mab:wpaper:2013_02
    Contact details of provider: Postal:
    100 Morrissey Blvd., Boston 02125

    Phone: 617-287-6950
    Fax: 617-287-6976
    Web page: http://economics.umb.edu

    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Atif R. Mian & Amir Sufi, 2009. "House Prices, Home Equity-Based Borrowing, and the U.S. Household Leverage Crisis," NBER Working Papers 15283, National Bureau of Economic Research, Inc.
    2. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative income, happiness, and utility: An explanation for the Easterlin paradox and other puzzles," Post-Print halshs-00754299, HAL.
    3. Jürgen Maurer & André Meier, 2008. "Smooth it Like the “Joneses?†Estimating Peer-Group Effects in Intertemporal Consumption Choice," MEA discussion paper series 08167, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    4. Midrigan, Virgiliu & Philippon, Thomas, 2016. "Household Leverage and the Recession," CEPR Discussion Papers 11407, C.E.P.R. Discussion Papers.
    5. Samuel Bowles & Yongjin Park, 2003. "Emulation, Inequality, and Work Hours: Was Thorsten Veblen Right," Department of Economics University of Siena 409, Department of Economics, University of Siena.
    6. Neumark, David & Postlewaite, Andrew, 1998. "Relative income concerns and the rise in married women's employment," Journal of Public Economics, Elsevier, vol. 70(1), pages 157-183, October.
    7. Veronica Guerrieri & Guido Lorenzoni, 2011. "Credit Crises, Precautionary Savings, and the Liquidity Trap," NBER Working Papers 17583, National Bureau of Economic Research, Inc.
    8. Clark, Andrew E. & Oswald, Andrew J., 1996. "Satisfaction and comparison income," Journal of Public Economics, Elsevier, vol. 61(3), pages 359-381, September.
    9. Erzo F.P. Luttmer, 2004. "Neighbors as Negatives: Relative Earnings and Well-Being," NBER Working Papers 10667, National Bureau of Economic Research, Inc.
    10. Thomas Lemieux, 2007. "The Changing Nature of Wage Inequality," NBER Working Papers 13523, National Bureau of Economic Research, Inc.
    11. Cooper, Ben & Garcia-Penalosa, Cecilia & Funk, Peter, 2001. "Status Effects and Negative Utility Growth," Economic Journal, Royal Economic Society, vol. 111(473), pages 642-65, July.
    12. Dirk Krueger & Fabrizio Perri, 2006. "Does Income Inequality Lead to Consumption Inequality? Evidence and Theory -super-1," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 163-193.
    13. Oh, Seung-Yun & Park, Yongjin & Bowles, Samuel, 2012. "Veblen effects, political representation, and the reduction in working time over the 20th century," Journal of Economic Behavior & Organization, Elsevier, vol. 83(2), pages 218-242.
    14. B.Curtis Eaton & Mukesh Eswaran, 2009. "Well-being and Affluence in the Presence of a Veblen Good," Economic Journal, Royal Economic Society, vol. 119(539), pages 1088-1104, 07.
    15. Michael D. Carr, 2013. "Local Area Inequality and Worker Well-Being," Review of Social Economy, Taylor & Francis Journals, vol. 71(1), pages 44-64, March.
    16. MatthewD. Rablen, 2008. "Relativity, Rank and the Utility of Income," Economic Journal, Royal Economic Society, vol. 118(528), pages 801-821, 04.
    17. Cynamon Barry Z. & Fazzari Steven M., 2008. "Household Debt in the Consumer Age: Source of Growth--Risk of Collapse," Capitalism and Society, De Gruyter, vol. 3(2), pages 1-32, October.
    18. Layard, Richard, 1980. "Human Satisfactions and Public Policy," Economic Journal, Royal Economic Society, vol. 90(363), pages 737-50, December.
    19. Sebastian Barnes & Garry Young, 2003. "The rise in US household debt: assessing its causes and sustainability," Bank of England working papers 206, Bank of England.
    20. Frank, Robert H., 2008. "Should public policy respond to positional externalities?," Journal of Public Economics, Elsevier, vol. 92(8-9), pages 1777-1786, August.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:mab:wpaper:2013_02. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Arjun Jayadev)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.