Debt Service Burden and Household Consumption: Evidence from a TVPVAR Model
DOI:
https://doi.org/10.5007/2175-8085.2025.e111870Keywords:
Debt burden, Household Indebtedness, Consumption, Budget ConstraintAbstract
The relationship between debt and consumption is complex in that families seek to incur debt in order to consume more. However, their budget constraints increase due to the greater commitment of income to debt, which leads to a reduction in consumption. Considering durable and non-durable goods, we show that for low levels of debt, positive shocks to income commitment are associated with smaller reductions in consumption. When debt is high, shocks to income commitment are associated with larger reductions in consumption. For durable goods, this result is more pronounced than for non-durable goods.
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