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Who Feels Constrained by High Debt Burdens? – Subjective vs. Objective Measures of Household Indebtedness

  • Matthias Keese

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    This paper analyzes diff erences in self-assessed debt burdens of German households confronted with an objective debt burden. Using data from the German Socio- Economic Panel, my econometric analysis shows that a household’s subjective debt burden is not only infl uenced by the current constellation of income, debt service and, possibly, the potential subsistence level, but also by expectations of the personal and overall socio-economic environment in the future (especially unemployment), as well as by further undetermined (and possibly non-fi nancial) factors. Confronted with a certain ratio of consumer debt repayments and income, women perceive signifi cantly higher subjective debt burdens. Unemployment is associated with drastically higher self-assessed debt burdens even when controlling for the overall fi nancial situation of the household. Furthermore, some discrepancies between East and West Germans are detectable. Only some diff erences in the subjective perception of objective debt burdens can be explained with personal traits (such as risk attitudes) and life satisfaction. I draw the following conclusions: First, self-assessed debt burdens contain information beyond the current economic situation, e.g., expectations on future incomes. Second, relying on subjective debt statements may lead to biased results for policy analysis if the researcher does not account for non-financial factors.

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    File URL: http://repec.rwi-essen.de/files/REP_10_169.pdf
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    Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0169.

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    Length: 33 pages
    Date of creation: Feb 2010
    Date of revision:
    Handle: RePEc:rwi:repape:0169
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    1. David B. Gross & Nicholas S. Souleles, 2002. "Do Liquidity Constraints And Interest Rates Matter For Consumer Behavior? Evidence From Credit Card Data," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 149-185, February.
    2. repec:dgr:kubcen:200743 is not listed on IDEAS
    3. Matthias Keese, 2009. "Triggers and Determinants of Severe Household Indebtedness in Germany," Ruhr Economic Papers 0150, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    4. Arthur Van Soest & Liam Delaney & Colm Harmon & Arie Kapteyn & James P. Smith, 2007. "Validating the Use of Vignettes for Subjective Threshold Scales," Working Papers 200714, Geary Institute, University College Dublin.
    5. Georgarakos, Dimitris & Lojschová, Adriana & Ward-Warmedinger, Melanie, 2010. "Mortgage indebtedness and household financial distress," Working Paper Series 1156, European Central Bank.
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    13. Lindeboom, Maarten & van Doorslaer, Eddy, 2004. "Cut-point shift and index shift in self-reported health," Journal of Health Economics, Elsevier, vol. 23(6), pages 1083-1099, November.
    14. Ana Del-Rí­o & Garry Young, 2005. "The impact of unsecured debt on financial distress among British households," Bank of England working papers 262, Bank of England.
    15. Matthias Keese, 2009. "Triggers and Determinants of Severe Household Indebtedness in Germany," SOEPpapers on Multidisciplinary Panel Data Research 239, DIW Berlin, The German Socio-Economic Panel (SOEP).
    16. Pamela Lenton & Paul Mosley, 2008. "Debt and Health," Working Papers 2008004, The University of Sheffield, Department of Economics, revised Apr 2008.
    17. Powell, Melanie & Ansic, David, 1997. "Gender differences in risk behaviour in financial decision-making: An experimental analysis," Journal of Economic Psychology, Elsevier, vol. 18(6), pages 605-628, November.
    18. Livingstone, Sonia M. & Lunt, Peter K., 1992. "Predicting personal debt and debt repayment: Psychological, social and economic determinants," Journal of Economic Psychology, Elsevier, vol. 13(1), pages 111-134, March.
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