Taking the Lid Off the Pot: Institutions, Credit Constraints and Household Debt in Europe

• In Event: 571 - Section on Economic Sociology Roundtables (one-hour)
  In Refereed Roundtable: Table 05. Households and Financialization

Abstract

During the global housing boom that preceded the current financial crisis, household debt increased substantially in many countries. Rising debt was not limited to the United States; at the peak of the boom in 2007, countries as diverse as the Netherlands and Spain had higher debt-to-income ratios than the US. This paper focuses on the institutional determinants of credit supply, suggesting that financialization has relaxed credit constraints, allowing households to borrow more. We also examine the variation in household response to institutions to capture the development of behaviors consistent with what Davis (2009) terms the “portfolio society.” Using household level data in six European countries, we find that institutional variables are more strongly predictive of household debt levels in Spain and Portugal, but less so in the Netherlands. Our results suggest that mortgage market institutions play an important role in shaping national household debt levels.

Authors

• Tod Stewart Van Gunten, Universidad Carlos III

• Edo Navot, Columbia University