Working Paper: CEPR ID: DP9238
Authors: Dimitris Georgarakos; Michael Haliassos; Giacomo Pasini
Abstract: Debt-induced crises, including the subprime crisis, are usually attributed exclusively to supply-side factors. We examine the role of social influences on debt culture, emanating from perceived average income of peers. Utilizing unique information from a household survey, representative of the Dutch population, that circumvents the issue of defining the social circle, we consider collateralized, consumer, and informal loans. We find robust social effects on borrowing - especially among those who consider themselves poorer than their peers - and on indebtedness, suggesting a link to financial distress. We employ a number of approaches to rule out spurious associations and to handle correlated effects.
Keywords: Consumer Credit; Household Debt; Household Finance; Informal Loans; Mortgages; Social Interactions
JEL Codes: E21; G11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Perceived peer income (D31) | Borrowing behavior (G51) |
| Perceived peer income (D31) | Collateralized loans (G51) |
| Perceived peer income (D31) | Uncollateralized loans (G21) |
| Households considering themselves poorer than peers (D19) | Borrowing behavior influenced by perceived peer income (C92) |
| Perceived peers' ability to spend (D12) | Borrowing decisions (G51) |