Expenditure cascades, low Interest rates or property booms? Determinants of household debt in OECD countries

ABSTRACT / The past decades have witnessed a strong increase in household debt and fast growth of private consumption expenditures in many countries. This paper empirically investigates four explanations: the expenditure cascades hypothesis; the housing boom hypothesis; the low interest hypothesis; the credit market deregulation hypothesis. The paper tests these hypotheses by estimating the determinants of household borrowing using a panel of 13 OECD countries (1980–2011). Results indicate that real estate prices were the most important drivers of household debt which we interpret as the result of speculative dynamics in real estate markets. In contrast we do not find a significant impact of shifts in the income distribution on household sector indebtedness. Our results are consistent with the credit deregulation and low interest rate hypotheses, but their explanatory power for the 1995–2007 period is low.

BIO / Engelbert Stockhammer is Professor of International Political Economy at King's College London. He has worked on Post Keynesian Economics, financialisation, wage-led demand regimes and economic policy in Europe and is ranked among the top 5% of economists worldwide by REPEC. He has published numerous articles in international peer-refereed journals including the Cambridge Journal of Economics, Oxford Review of Economic Policy, International Review of Applied Economics, Journal of Post Keynesian Economics, British Journal of Industrial Relations, Environment and Planning A, and New Political Economy . Recent books include Wage-Led Growth. An Equitable Strategy for Economic Recovery.