Working Paper: CEPR ID: DP17711
Authors: Asger Lau Andersen; Rajkamal Iyer; Niels Johannesen; Mia Jørgensen; José Luis Peydr
Abstract: We use detailed administrative records to show that high household leverage increases mental health fragility, with persistent negative economic effects. After adverse life events, e.g. heart attacks or job losses, individuals with higher ex ante leverage experience larger increases in mental health problems. The effects are long-lasting and stronger in times of financial crisis. Parallel pre-trends, robustness to non-parametric controls, and IV estimation suggest the results are not driven by confounding unobservables. High leverage is also associated with worse long-run earnings dynamics at the time when loan arrears and mental health problems emerge, suggesting tenacious scarring effects of leverage.
Keywords: mental health
JEL Codes: G50; G01; I10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| high household leverage (G51) | increased mental health fragility (E71) |
| high household leverage (G51) | exacerbated mental health issues (I12) |
| adverse life events (I12) | increased mental health problems (I12) |
| high household leverage (G51) | worse long-run earnings dynamics (J39) |