Abstract
The rise in household debt raises the question: what really causes people to take on more debt when they have to serve the cost of borrowings for the rest of their lives? It appears that households are willing to trade their financial freedom for something that is more precious at a time when the gap between the rich and the poor is widening. In this regards, our main objective is to investigate the relationship between household debt and income gap. The understanding of this issue may give good insights as to how household would make decisions to leverage their balance sheet. This is particularly true in the context of “keeping up with the Jones’s” which provides the theoretical framework of such phenomenon while greater access to credit would facilitate the process. In this research, the Generalized Methods of Moments (GMM) technique is employed for 55 countries and covers the period from 2000 to 2012. The results showed that there is a significant positive relationship between income gap and household debt. In addition, the level of indebtedness is deemed to be persistent throughout our sample countries, suggesting that households will remain in debt-trap.
| Original language | English |
|---|---|
| Pages (from-to) | 1-19 |
| Number of pages | 19 |
| Journal | Institutions and Economies |
| Volume | 9 |
| Issue number | 1 |
| Publication status | Published - 2017 |
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Keywords
- Conspicuous consumption and social interactions
- Credit ratio
- Household debt
- Income gap
ASJC Scopus subject areas
- Business, Management and Accounting(all)
- Economics, Econometrics and Finance(all)
Cite this
Does income gap matter for household debt accumulation? / Rashid, Mohd Afzanizam Abdul; Sarmidi, Tamat; Md Nor, Abu Hassan Shaari; Md Noor, Nor Ghani.
In: Institutions and Economies, Vol. 9, No. 1, 2017, p. 1-19.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Does income gap matter for household debt accumulation?
AU - Rashid, Mohd Afzanizam Abdul
AU - Sarmidi, Tamat
AU - Md Nor, Abu Hassan Shaari
AU - Md Noor, Nor Ghani
PY - 2017
Y1 - 2017
N2 - The rise in household debt raises the question: what really causes people to take on more debt when they have to serve the cost of borrowings for the rest of their lives? It appears that households are willing to trade their financial freedom for something that is more precious at a time when the gap between the rich and the poor is widening. In this regards, our main objective is to investigate the relationship between household debt and income gap. The understanding of this issue may give good insights as to how household would make decisions to leverage their balance sheet. This is particularly true in the context of “keeping up with the Jones’s” which provides the theoretical framework of such phenomenon while greater access to credit would facilitate the process. In this research, the Generalized Methods of Moments (GMM) technique is employed for 55 countries and covers the period from 2000 to 2012. The results showed that there is a significant positive relationship between income gap and household debt. In addition, the level of indebtedness is deemed to be persistent throughout our sample countries, suggesting that households will remain in debt-trap.
AB - The rise in household debt raises the question: what really causes people to take on more debt when they have to serve the cost of borrowings for the rest of their lives? It appears that households are willing to trade their financial freedom for something that is more precious at a time when the gap between the rich and the poor is widening. In this regards, our main objective is to investigate the relationship between household debt and income gap. The understanding of this issue may give good insights as to how household would make decisions to leverage their balance sheet. This is particularly true in the context of “keeping up with the Jones’s” which provides the theoretical framework of such phenomenon while greater access to credit would facilitate the process. In this research, the Generalized Methods of Moments (GMM) technique is employed for 55 countries and covers the period from 2000 to 2012. The results showed that there is a significant positive relationship between income gap and household debt. In addition, the level of indebtedness is deemed to be persistent throughout our sample countries, suggesting that households will remain in debt-trap.
KW - Conspicuous consumption and social interactions
KW - Credit ratio
KW - Household debt
KW - Income gap
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M3 - Article
AN - SCOPUS:85009792175
VL - 9
SP - 1
EP - 19
JO - Institutions and Economies
JF - Institutions and Economies
SN - 2232-1640
IS - 1
ER -