IDEAS home Printed from https://ideas.repec.org/p/pke/wpaper/pkwp1608.html
   My bibliography  Save this paper

Determinants of US household debt: New evidence from the SCF

Author

Listed:
  • Rafael Wildauer

    () (University of Greenwich)

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

  • Rafael Wildauer, 2016. "Determinants of US household debt: New evidence from the SCF," Working Papers PKWP1608, Post Keynesian Economics Society (PKES).
  • Handle: RePEc:pke:wpaper:pkwp1608
    as

    Download full text from publisher

    File URL: http://www.postkeynesian.net/downloads/working-papers/PKWP1608.pdf
    File Function: First version, 2016
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. MacKinnon, James G & Magee, Lonnie, 1990. "Transforming the Dependent Variable in Regression Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 315-339, May.
    2. Alan Greenspan & James Kennedy, 2008. "Sources and uses of equity extracted from homes," Oxford Review of Economic Policy, Oxford University Press, vol. 24(1), pages 120-144, spring.
    3. Anthony B. Atkinson & Thomas Piketty & Emmanuel Saez, 2011. "Top Incomes in the Long Run of History," Journal of Economic Literature, American Economic Association, vol. 49(1), pages 3-71, March.
    4. Frank, Robert H, 1985. "The Demand for Unobservable and Other Nonpositional Goods," American Economic Review, American Economic Association, vol. 75(1), pages 101-116, March.
    5. Cristiano Perugini & Jens Hölscher & Simon Collie, 2016. "Inequality, credit and financial crises," Cambridge Journal of Economics, Oxford University Press, vol. 40(1), pages 227-257.
    6. Moritz Schularick & Alan M. Taylor, 2012. "Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870-2008," American Economic Review, American Economic Association, vol. 102(2), pages 1029-1061, April.
    7. Campbell, John Y. & Cocco, Joao F., 2007. "How do house prices affect consumption? Evidence from micro data," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 591-621, April.
    8. Thomas I. Palley, 1994. "Debt, Aggregate Demand, and The Business Cycle: an Analysis in the Spirit of Kaldor and Minsky," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 16(3), pages 371-390, March.
    9. Jan Behringer & Till van Treeck, 2013. "Income distribution and current account: A sectoral perspective," IMK Working Paper 125-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    10. Paul Eckerstorfer & Johannes Halak & Jakob Kapeller & Bernhard Schütz & Florian Springholz & Rafael Wildauer, 2016. "Correcting for the Missing Rich: An Application to Wealth Survey Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(4), pages 605-627, December.
    11. Engelbert Stockhammer & Rafael Wildauer, 2016. "Debt-driven growth? Wealth, distribution and demand in OECD countries," Cambridge Journal of Economics, Oxford University Press, vol. 40(6), pages 1609-1634.
    12. Atif Mian & Amir Sufi, 2009. "The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1449-1496.
    13. Soon Ryoo, 2016. "Household debt and housing bubbles: a Minskian approach to boom-bust cycles," Journal of Evolutionary Economics, Springer, vol. 26(5), pages 971-1006, December.
    14. Atif Mian & Amir Sufi, 2011. "House Prices, Home Equity-Based Borrowing, and the US Household Leverage Crisis," American Economic Review, American Economic Association, vol. 101(5), pages 2132-2156, August.
    15. Bordo, Michael D. & Meissner, Christopher M., 2012. "Does inequality lead to a financial crisis?," Journal of International Money and Finance, Elsevier, vol. 31(8), pages 2147-2161.
    16. Bostic, Raphael & Gabriel, Stuart & Painter, Gary, 2009. "Housing wealth, financial wealth, and consumption: New evidence from micro data," Regional Science and Urban Economics, Elsevier, vol. 39(1), pages 79-89, January.
    17. repec:dgr:rugsom:14016-gem is not listed on IDEAS
    18. Monica Paiella, 2009. "The Stock Market, Housing And Consumer Spending: A Survey Of The Evidence On Wealth Effects," Journal of Economic Surveys, Wiley Blackwell, vol. 23(5), pages 947-973, December.
    19. Daniel Cooper, 2013. "House Price Fluctuations: The Role of Housing Wealth as Borrowing Collateral," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1183-1197, October.
    20. 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.
    21. Amitava Krishna Dutt, 2006. "Maturity, Stagnation And Consumer Debt: A Steindlian Approach," Metroeconomica, Wiley Blackwell, vol. 57(3), pages 339-364, July.
    22. Richard Holt & Daphne Greenwood, 2012. "Negative Trickle-Down and the Financial Crisis of 2008," Journal of Economic Issues, Taylor & Francis Journals, vol. 46(2), pages 363-370.
    23. Alpizar, Francisco & Carlsson, Fredrik & Johansson-Stenman, Olof, 2005. "How much do we care about absolute versus relative income and consumption?," Journal of Economic Behavior & Organization, Elsevier, vol. 56(3), pages 405-421, March.
    24. Simone Salotti, 2012. "Wealth Effects in the US: Evidence from the Combination of Two Surveys," The Economic and Social Review, Economic and Social Studies, vol. 43(1), pages 67-98.
    25. Tobin, James, 1982. "Money and Finance in the Macroeconomic Process," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(2), pages 171-204, May.
    26. Daniel Cooper & Karen Dynan, 2016. "Wealth Effects And Macroeconomic Dynamics," Journal of Economic Surveys, Wiley Blackwell, vol. 30(1), pages 34-55, February.
    27. Orazio P. Attanasio & Laura Blow & Robert Hamilton & Andrew Leicester, 2009. "Booms and Busts: Consumption, House Prices and Expectations," Economica, London School of Economics and Political Science, vol. 76(301), pages 20-50, February.
    28. Christopher D. Carroll, 2001. "A Theory of the Consumption Function, with and without Liquidity Constraints," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 23-45, Summer.
    29. Jakob Kapeller & Bernhard Schütz, 2014. "Debt, boom, bust: a theory of Minsky-Veblen cycles," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 36(4), pages 781-814.
    30. Claudio Borio, 2014. "The financial cycle and macroeconomics: what have we learned and what are the policy implications?," Chapters,in: Financial Cycles and the Real Economy, chapter 2, pages 10-35 Edward Elgar Publishing.
    31. Christian A. Belabed & Thomas Theobald & Till van Treeck, 2013. "Income Distribution and Current Account Imbalances," IMK Working Paper 126-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    32. Yun Kim, 2013. "Household debt, financialization, and macroeconomic performance in the United States, 1951-2009," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 35(4), pages 675-694.
    33. Eckhard Hein & Lena Vogel, 2008. "Distribution and growth reconsidered: empirical results for six OECD countries," Cambridge Journal of Economics, Oxford University Press, vol. 32(3), pages 479-511, May.
    34. repec:bla:revinw:v:64:y:2018:i:2:p:357-387 is not listed on IDEAS
    35. Frank, Robert H. & Levine, Adam Seth & Dijk, Oege, 2014. "Expenditure Cascades," Review of Behavioral Economics, now publishers, vol. 1(1-2), pages 55-73, January.
    36. Jürgen Maurer & André Meier, 2008. "Smooth it Like the 'Joneses'? Estimating Peer-Group Effects in Intertemporal Consumption Choice," Economic Journal, Royal Economic Society, vol. 118(527), pages 454-476, March.
    37. Borio, Claudio, 2014. "The financial cycle and macroeconomics: What have we learnt?," Journal of Banking & Finance, Elsevier, vol. 45(C), pages 182-198.
    38. Philip Vermeulen, 2018. "How Fat is the Top Tail of the Wealth Distribution?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 64(2), pages 357-387, June.
    39. Arthur B kennickell, 2008. "The role of over-sampling of the wealthy in the survey of consumer finances," IFC Bulletins chapters,in: Bank for International Settlements (ed.), The IFC's contribution to the 56th ISI Session, Lisbon, August 2007, volume 28, pages 403-408 Bank for International Settlements.
    40. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 397-444, April.
    41. Barry Eichengreen & Kris Mitchener, 2003. "The Great Depression as a credit boom gone wrong," BIS Working Papers 137, Bank for International Settlements.
    42. Bezemer, Dirk & Grydaki, Maria & Zhang, Lu, 2014. "Is financial development bad for growth?," Research Report 14016-GEM, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    43. Jeffrey C. Fuhrer, 2000. "Habit Formation in Consumption and Its Implications for Monetary-Policy Models," American Economic Review, American Economic Association, vol. 90(3), pages 367-390, June.
    44. Soon Ryoo, 2013. "Bank profitability, leverage and financial instability: a Minsky–Harrod model," Cambridge Journal of Economics, Oxford University Press, vol. 37(5), pages 1127-1160.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dögüs, Ilhan, 2016. "A Minskyan criticism on the shareholder pressure approach of financialisation," Discussion Papers 53, University of Hamburg, Centre for Economic and Sociological Studies (CESS/ZÖSS).
    2. Dögüs, Ilhan, 2019. "Consumption dispersion between white-collar and blue-collar workers and rising market concentration in the USA: 1984-2011," Discussion Papers 72, University of Hamburg, Centre for Economic and Sociological Studies (CESS/ZÖSS).

    More about this item

    Keywords

    household debt; expenditure cascades; wealth effects; Minsky;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E03 - Macroeconomics and Monetary Economics - - General - - - Behavioral Macroeconomics
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pke:wpaper:pkwp1608. 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: (Jo Michell). General contact details of provider: http://edirc.repec.org/data/pksggea.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.