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Discussion Paper Details

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Title: Household Debt and Social Interactions

Author(s): Dimitris Georgarakos, Michael Haliassos and Giacomo Pasini

Publication Date: December 2012

Keyword(s): consumer credit, household debt, Household finance, informal loans, mortgages and social interactions

Programme Area(s): Financial Economics

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.

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Bibliographic Reference

Georgarakos, D, Haliassos, M and Pasini, G. 2012. 'Household Debt and Social Interactions'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9238