Does income gap matter for household debt accumulation?

Mohd Afzanizam Abdul Rashid, Tamat Sarmidi, Abu Hassan Shaari Md Nor, Nor Ghani Md Noor

Research output: Contribution to journalArticle

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 languageEnglish
Pages (from-to)1-19
Number of pages19
JournalInstitutions and Economies
Volume9
Issue number1
Publication statusPublished - 2017

Fingerprint

Household debt
Household
Income gap
Debt
Generalized method of moments
Borrowing
Indebtedness
Household income
Access to credit
Theoretical framework
Balance sheet
Costs
Trap
Leverage

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

Rashid, M. A. A., Sarmidi, T., Md Nor, A. H. S., & Md Noor, N. G. (2017). Does income gap matter for household debt accumulation? Institutions and Economies, 9(1), 1-19.

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 journalArticle

Rashid, MAA, Sarmidi, T, Md Nor, AHS & Md Noor, NG 2017, 'Does income gap matter for household debt accumulation?', Institutions and Economies, vol. 9, no. 1, pp. 1-19.
Rashid, Mohd Afzanizam Abdul ; Sarmidi, Tamat ; Md Nor, Abu Hassan Shaari ; Md Noor, Nor Ghani. / Does income gap matter for household debt accumulation?. In: Institutions and Economies. 2017 ; Vol. 9, No. 1. pp. 1-19.
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