Jonathan Crook 1 Stefan Hochguertel 2

Transcription

1 TI /3 Tnbergen Insue Dscusson Paper US and European Household Deb and Cred Consrans Jonahan Crook Sefan Hochguerel 2 Unversy of Ednburgh; 2 VU Unversy Amserdam, and Tnbergen Insue.

2 Tnbergen Insue The Tnbergen Insue s he nsue for economc research of he Erasmus Unverse Roerdam, Unverse van Amserdam, and Vrje Unverse Amserdam. Tnbergen Insue Amserdam Roeerssraa 3 08 WB Amserdam The Neherlands Tel.: +3(0) Fax: +3(0) Tnbergen Insue Roerdam Burg. Oudlaan PA Roerdam The Neherlands Tel.: +3(0) Fax: +3(0) Mos TI dscusson papers can be downloaded a hp://

3 US and European Household Deb and Cred Consrans: Comparave Mcro Evdence from he Las 5 Years Jonahan Crook Unversy of Ednburgh Sefan Hochguerel VU Unversy Amserdam Tnbergen Insue Verson: 2 November 2007 Absrac. Ths paper uses mcro daa from four OECD counres (he Uned Saes, Span, Ialy, and he Neherlands), o assess he deermnans of household deb holdng and o nvesgae wheher or no cred consrans are mporan for household deb holdng. We exend he exsng leraure n mporan ways. Frs, we presen comparave evdence for four counres a he mcro level, where we rely on household panel daa for wo counres; we are hus able o conrol for unobserved heerogeney va ndvdual household effecs and o rack changes n household behavour over me. Second, by makng daa across counres as comparable as possble, we can explore he mporance of he dfferences n nsuonal sengs for deb ncdence, deb ousandng and cred consrans. We also explore he mplcaons for deb holdng from consumpon models, ncludng a numercally solved precauonary savngs model. We fnd ha ner-counry dfferences are subsanal and reman even afer conrollng for a hos of observable characerscs. Ths pons o nsuonal dfferences beween he counres beng mporan. Acknowledgemens: Ths paper was wren whle he auhors were vsng he Fnance and Consumpon n he European Unon Program a he European Unversy Insue n Florence. We hank Fnance and Consumpon for her suppor and hospaly. Crook would also lke o hank he Carnege Trus for he Unverses of Scoland for fnancal suppor for hs research. We hank Rob Alesse, Rchard Dsney, Rob Euwals, Tullo Jappell, Tansel Ylmazer, Erneso Vllanueva, semnar audences a CPB The Hague, Unverses of Copenhagen, Ednburgh, and Nongham, and conference audences a Venna (European Economc Assocaon), Florence, and Madrd for nsghful commens. We hank Cenerdaa for provdng Duch panel daa, and n parcular Klaas de Vos for help wh wealh daa. Correspondence o: jonahan.crook@ed.ac.uk and shochguerel@feweb.vu.nl.

4 . Inroducon Afer he summer of 2007, cred o households has shfed no he focus of polcymakers and he bankng ndusry alke. Wha began wh rsng defaul raes n he US subprme morgage marke, may develop no a global cred crss. European banks already face he consequences of borrowers beng unable o servce her conracs on me. In urn, cenral banks see her scope of acon severely consraned, and he macroeconomc mplcaons of hese recen developmens may be very farreachng. Agans hs background, we provde a sysemac nernaonal comparson of household deb holdng and of access o cred, usng mcroeconomc daa ha allow us o race he evoluon of deb and o assess consrans over he pas one-and-a-half decades. Whls curren meda aenon s dreced a wheher access o borrowng has been oo easy for some households, he academc leraure has debaed for a long me wheher fnancal markes nsuons may have neffcenly consraned household borrowng, and wheher polcy ough no o remove or ease such consrans. Household deb holdng has ndeed ncreased subsanally over he las decades n many OECD counres, boh n erms of he oal amoun ousandng and relave o ncomes, household deb porfolos have become more dversfed. Have borrowng consrans become a non-ssue? We argue n hs paper ha hs s no necessarly he rgh concluson, based on analyss and comparson of mcro daa on household deb holdng from four OECD counres ha dsplay very dfferen paerns of deb holdng and where cred consrans seem o play very dfferen roles. Whereas we do fnd srong me rends, beween-counry dfferences reman very sark and appear emprcally more mporan han whn-counry changes over me. These pernen paerns sugges ha nsuons ha shape demand and supply n cred markes play an mporan role, and we documen subsanal nsuonal dfferences beween counres. Very few sudes have examned nernaonal dfferences n he volume of household deb or n cred consrans. Jappell and Pagano (989) sared by analysng any excess sensvy of consumpon expendure o curren ncome n an nernaonal comparson. They nerpre her fndngs n he lgh of nsuonal dfferences across seven counres, and relae mpled dfferences n he demand and supply of loans o varaon n he severy of lqudy consrans. Bacchea and Gerlach (997) used aggregae daa for fve OECD counres o fnd ha overall consumpon expendure shows excess sensvy wh respec o boh morgage and consumer cred and ha he wedge beween borrowng and lendng raes s sgnfcanly relaed o consumpon n hree of he fve counres. Bu he aggregae daa employed say nohng abou heerogeneous responses n he populaon o polcy varaon and changes n demand and supply condons. Mos emprcal resuls based on mcro daa relae o he Uned Saes (Jappell 990, Crook, Thomas and Hamlon 200, Duca and Rosenhal 993, Lyons 2004, Cox and Jappell 993, Ferr and Smon 2002) alhough here s some research for Ialy (Fabbr and Padula, 2004 and Magr 2002) and also for Ausrala (La Cava and Smon 2003).

5 Several researchers have examned he deermnans of household demand for deb and agan he only counres consdered are he US and Ialy (see Crook, 2006 for a survey). The sngle-counry evdence suggess ha he ncdence of cred consrans dffers consderably beween counres. Ths paper has wo man ams and conrbuons. Frs, we compare he deermnans of household level cred consrans across four OECD counres over he las 5 years: he Uned Saes, Span, Ialy, and he Neherlands. We use panel daa for he laer wo and repeaed cross secons for he Uned Saes. We also presen he frs evdence on deb and cred consrans from he frs wave of a new Spansh survey. The mcro daa ha have been analysed so far are ypcally no longudnal and no sudy has ye provded nernaonal comparsons of he deermnans of cred consrans and he demand for household deb usng mcro daa drecly. The daa we use have ganed nernaonal recognon for beng among he mos relable sources for measurng household asses and lables. We expend large effors o make he daa as comparable as possble n erms of varable defnons, and we documen common rends. In all counres we rely on self-repors on wheher or no households cred applcaons have been urned down or wheher households fel dscouraged from applyng for cred. Second, our resuls bear on pars of he consumpon leraure, as we fnd srong paerns n he daa ha are conssen wh sandard models dervng from he permanen ncome hypohess. To be specfc, we fnd he demand for cred o respond negavely o an ncrease n a posve dfference beween curren and (a measure of) permanen ncome n wo of he four counres. The remander of hs paper s srucured as follows. In Secon 2 we skech and numercally solve a consumpon model ha allows us o explore deermnans of he demand for cred n he face of cred consrans. In Secon 3, we dscuss he way n whch nsuons may mpac on observed cred behavour (boh demand and supply), and we dscuss n deal nsuonal dfferences beween counres. Secon 4 nroduces he daa used, and Secon 5 descrbes he dsrbuon of deb ousandng n he dfferen counres. Secon 6 skeches emprcal sraeges, Secon 7 brefly commens on esmaors used and presens resuls on cred applcaon, cred consrans, and household deb holdng. Secon 8 concludes. 2. Theory of Cred Consrans We consder he sandard neremporal choce framework o make clear how lqudy consrans can be mporan deermnans of household cred behavour. We sar whou such consrans. A consumer allocaes hs lfe-me earnngs o consumpon expendure c over me. Under neremporal separably and exponenal dscounng, he maxmzes he value funcon a age and wh horzon T, T s V = E β u( cs) (2.) s= where E denoes he expecaons operaor condonal on nformaon a me, u denoes nsananeous felcy and β s a facor used o dscoun he fuure wh δ beng he rae of me preference, = ( + δ ) β. Denoe (sochasc) earnngs by y.

6 There s a sngle asse A wh a sngle, fxed reurn R=+r. The behavoural equaon ha drves consumpon demand and mples asse and deb holdng s he Euler equaon ) '( ) ( ' = + c RE u c u β (2.2) The level of consumpon s deermned from here ogeher wh a consran on asses n he fnal perod. We assume 0 = T A. Absen furher resrcons on eher uly or ncome processes (or boh), closed form soluons for opmal consumpon do no exs. Under he parameerzaon of he Cerany Equvalence verson of Fredman s permanen ncome hypohess (PIH), some explc soluons have been derved (see e.g. Deaon, 992). Here, consumers me preference rae equals he neres rae, R = β, and nsananeous felcy funcons u are quadrac n consumpon. In ha case, margnal uly s lnear and consumpon follows a marngale, + = c E c. A closed-form soluon for opmal consumpon can be obaned. Consumpon wll equal permanen ncome, p Y, whch s defned o correspond o he annuy value of fuure earnngs and capal ncome. Kapeyn, Alesse and Lusard (2005) show he dependency of curren asses on ncome realzaons and expecaon errors: { } + + = + + = = = = = s p s s s s s p s s s s s s s s Y y E R A R Y R R y E R A R A ; 0 ; 0 ε ε (2.3) where s s s y E y ; = ε s he perod- expecaon error of perod-s ncome. Ths equaon shows how unexpeced devaons from ncome ranslae no asse or deb changes. The noonal demand for deb arses ou of 0 < A. Wh a hump-shaped earnngs profle over he lfe cycle, a household would be expeced o borrow when relavely young and dssave n reremen. Snce an unexpeced change n ncome wll affec permanen ncome only by s annuy value, borrowng s more sensve o ncome shocks han consumpon. The laer reacs manly o permanen shocks, he former also o ransory shocks. To llusrae furher, assume ha ncome s ceran and grows a facor G beween he years, unl before reremen,,...,, = = R y G y, and drops o a consan fracon of las earnngs T y y R R,...,, = = α n reremen. Then, asses (and hence deb) can be shown o evolve accordng o ( ), ) ( ) ( ) ( = + R T T T r G y R R R R R G R G R g r y A R A R R R R α κ κ

7 κa = ( R T y G A ) 0 + r g R R R 2 + T T y G R R α ( + R R R ), R r where κ = ( R T ). (2.4) Snce ncomes are smooh durng boh workng and reremen perods, asses wll be smooh funcons as well. Furher assume he absence of nherances, A = 0 0. The model sll allows for a number of very dfferen asse pahs, among whch an nal perod of borrowng, followed by posve asses ha peak a he begnnng of reremen and are hen run down. Oher scenaros are possble, ncludng a household never borrowng or never havng posve asses. Comparave sacs can n prncple be obaned by akng he dervaves wh respec o he varous parameers. Whle ncreasng reremen age or he replacemen rae wll reduce asse holdngs (snce here s less need o save for reremen), he demand for deb holdng wll ncrease. Income growh wll lkewse ncrease he demand for deb. If ncome growh s suffcenly small or zero durng workng lfe, no deb wll be held. (Income growh s nonposve beween perods R and R due o α ). Furher nsghs can be ganed by solvng he model numercally, or by furher resrcng some of he model s parameers. Cred consrans n he sense ha consumers are kep from borrowng despe her wanng o borrow a he gven neres rae ener he model by addng addonal lower bounds on curren asses, A B for every, where B 0 s he borrowng lm. If B s zero, no borrowng s possble, f B > 0, borrowng s possble agans human capal o he exen ha he loan s no collaeralzed. These raonng consrans have been movaed by Sglz and Wess (98) from problems of asymmerc nformaon. Compeve banks urn ou o have an opmal neres rae f hey are o maxmze her rae of reurn on her lendng porfolos. Takng no accoun he effecs of adverse selecon, a hgh enough lendng rae wll prce he good rsks ou of he marke, leavng he pool of borrowers domnaed by worse rsks (who mgh have a larger probably of defaulng on her loans). The opmal lendng rae s se where he margnal cos ncurred due o adverse selecon balance off agans he ncremenal prof ha s possble wh seng a hgher rae. Sckng o hs opmal rae may nvolve raonng of demand n equlbrum, and some borrowers wll no be graned her loan applcaons despe hem beng observaonally equvalen o ohers, gven he neres rae. In consumpon models, cred consrans are mposed as addonal nequaly consrans on he problem. Deaon (99) wres he Euler equaon as u ( c ) max{ u'( x ), β RE u'( c )} (2.5) ' = + where x = A + y s cash on hand. Noe ha borrowng consrans mply no only breakng he usual Euler equaon beween wo perods when raonng s bndng, bu

8 here s also an ancpaory effec on consumpon (and hence borrowng) snce lqudy consrans ha may bnd n he fuure can work hrough on presen behavour and encourage savng or reduce borrowng. Marger (987) sresses ha such consrans effecvely shoren he plannng horzon. Fgure llusraes: he sold lne shows consumpon and asses n he absence of cred consrans, he dashed lne mposes a nonzero borrowng lm: consumpon smoohng leads o he effecve perod of bndng consrans o be shorer han would have been he case f he consumer had been surprsed. FIGURE HERE More general models allowng for nonlnear margnal uly, such as consan relave rsk averson γ c u ( c ) = (2.6) γ (where γ measures rsk averson) mply ha preference parameers whose mpac he cerany equvalence formulaon from above gnores are crucal deermnans of borrowng behavour (Carroll, 997 and Deaon, 99). If consumers are paen enough and suffcenly rsk averse (hus, have a low elascy of neremporal subsuon), hey may be less nclned o borrow or would no wan o borrow a all. In addon, as sressed by Carroll (997), he sochasc properes of he ncome process wll maer: If ncome can drop o zero wh posve probably, even mpaen consumers wh seep ncome profles may no wan o borrow n order o avod (n uly erms) caasrophc oucomes. Snce closed-form soluons are no avalable, we need o smulae he model n order o sudy he mplcaons of parameer values and changes hereof. Income consss of he curren realzaon of permanen ncome and a mulplcave ransory ncome shock ε. Noe, ha permanen ncome s unlke n he cerany equvalence case varyng over me. Permanen ncome s modelled as an AR() process; grows a rae G and s subjec o a permanen shockη, y = Y ε Y p p = Y η p (2.7) Shocks are assumed o be lognormally dsrbued, wh parameers σ ε and σ η (and 2 2 µ = 0.5, and µ = 0.5, ). The model can be solved numercally by backward ε σ ε η σ η nducon, where we deermne he opmal consumpon polcy as a funcon of curren cash-on-hand (see Deaon 99 for deals). Noe, ha sandard references n he leraure assume T for compuaonal purposes. Snce ha mples absence of a reremen perod, we solve he model for fne T. Indvduals rere a a fxed dae R, upon whch her ncomes drop o a fracon α of her las earned ncome. The laer however mples ha known comparave sacs are no avalable anymore, no leas because ncome growh s negave a R and zero hereafer. We sudy he model under absence and presence of an explc borrowng consran a B=0.

9 Benchmark parameers are shown n Table, chosen n accordance wh smlar exercses done elsewhere n he leraure. Table 2 shows deb holdng paerns for hs benchmark case and for cases where we devaed from he benchmark parameers by changng one parameer a a me snce ofen a range of parameer values appears sensble. TABLE HERE TABLE 2 HERE All specfcaons show common paerns. For nsance, he rao of average deb o average ncome s slghly smaller han he mean of he ndvdual deb o ncome rao. The dsrbuons of deb o ncome, boh uncondonal and condonal (on deb holdng), are rgh skewed, and n (almos) all cases we observe a hump-shaped age paern: he 40 year olds appear o hold mos deb among all he dsplayed ages. The sandard devaon of deb o ncome also peaks a age 40 or 50. Ths s drven by he generaed heerogeney due o ncome uncerany n he model. Deb ncdence s almos always monooncally decreasng wh age. In addon, deb holdng n reremen s rare and surfaces only n a few nsances. The benchmark specfcaon shows a decreasng age paern n erms of deb ncdence, wh people of 30 years of age havng an 8% chance of deb holdng, decreasng o zero n reremen. A age 40, 73.4% of all ndvduals hold deb. Average deb holdng amouns o abou a quarer of annual ncome (boh a he aggregae and ndvdual level). Condonal on holdng deb, he fgure exceeds one hrd a ha age. Noe ha n hs benchmark case condonal deb holdng ncreases when we go from age 50 o age 60. Apparenly, he sample s hen domnaed by a few people ha hold hgh deb balances. We also recalculae he model for he case ha bndng lqudy consrans a a lower bound of B=0 are mposed. If we defne people o be consraned when her curren cash on hand falls shor of 0 percen of her consumpon level a ha age, we see ha 7.6% of he 30 year olds are consraned as opposed o 2.5% of 40 year olds. Ths should be conrased wh he 8.% and 73.4% of people ha wan o hold deb a hese ages. Noe ha he dfference beween hese fgures s parly drven by he precauonary response: people ha are lqudy consraned wll wan o buld up addonal buffers o say away from he consran. Thus, when people ancpae lqudy consrans n he fuure, hey wll be nduced o save more and be less nclned o apply for cred (n hs model, under a bndng lqudy consran, everybody who wans cred wll also be dened). Devang from he benchmark shows neresng paerns. The second panel of he Table consders cases where he reremen savng move s vared. Decreasng he reremen replacemen rae from 75% o 65% of las earned ncome reduces deb holdng subsanally. Even more remarkable, however, s he sensvy of changes wh respec o ncome growh. Reducng ncome growh from 2.0% o.5% percen slashes he demand for deb o close o zero. Conversely, ncreasng ncome growh o 2.5% would resul n almos every young household holdng deb (no dsplayed n he Table).

10 The hrd panel of he Table looks a changes n he precauonary response. We make eher ncome less volale, reducng he sandard devaon of ncome shocks from 0% o 7.5%, or we ncrease he curvaure of margnal uly, by ncreasng rsk averson from 2 o 3. The former change ncreases deb holdng by a large margn, he laer lkewse decreases. The effec of he change n rsk averson s comparable o he effec of he change n ncome growh. The las panel, fnally, vares he reurn on asses and he me preference rae, one a a me. Increasng he neres rae has agan quanavely smlar effecs as decreasng ncome growh or ncreasng rsk averson. The resul s no sraghforward o nerpre, however, snce here are a leas hree effecs a work. A subsuon effec makes fuure consumpon more aracve, hus smulang savng, whch may be parly offse by an ncome effec ha rases fuure wealh hrough he reurn on asses (f asses are posve). Also, here s a human capal effec ha reduces he presen value of lfeme earnngs, depressng consumpon and smulang asse accumulaon. Fnally, makng he consumer more mpaen has he ancpaed resul ha deb holdng ncreases subsanally. 3. Prma Face Evdence and Insuonal Dfferences beween Cred Markes The prevous secon oulned how parameers of a consumer s problem mpac on he demand for cred and he lkelhood of beng cred consraned, once here are exogenous borrowng consrans. Ye, we expec and show below ha here are subsanal dfferences beween counres remanng ha are no easly explaned by changes n hose parameers. Insead, nsuonal facors (whch he above model does no nclude) are lkely mporan deermnans of boh supply and demand for deb, he ncdence of holdng deb and he ncdence of cred consrans. Hence our sraegy s smlar o ha of oher sudes ha examne paerns beween counres, such as Banks, Blundell and Smh (2003), Hurd and Kapeyn (2003), Kapeyn and Pans (2003), or Börsch-Supan and Lusard (2003) n ha we mplcly arbue he unexplaned varaon beween counres o dfferences n nsuons. Ths secon dscusses hese facors and her mplcaons, referrng o he four OECD counres under sudy: he Uned Saes, Span, Ialy, and he Neherlands. There are hree reasons why we choose hese counres. Mos mporanly, here are subsanal nsuonal and srucural dfferences beween hese counres and so a comparson beween hem may gve us a frs dea as o he effecs of hese nsuonal dfferences. Second, here are subsanal dfferences n he use of cred beween he counres, some of whch markng exremes whn he OECD. Thrd, purely pragmacally, hese are he only four counres for whch a naonally represenave survey collecs daa for self-repored cred consrans (Crook 2005). To llusrae he second pon, refer o Table 3 presenng OECD daa. The Neherlands s one of he hghes consumer deb-laden counres n Europe and he wesern world whls Ialy s one of he lowes. The US s n hs respec closer o he Neherlands han o Ialy. Span, n urn, ranks jus below he US. For example, of all

11 OECD counres for whch daa s avalable n 2005, he Neherlands had he secondhghes level of household deb (ncludng non-prof nsuons) relave o dsposable ncome (34%) whls Ialy had he lowes a 43%, he US ranked fourh wh %, and Span ffh wh 94%. In erms of morgage deb relave o GDP, he Neherlands has amongs he hghes rao n he world. The Duch fgure almos doubled from around 40% begnnng of he 990 s o 78.8% recenly. Ialy s a he oher exreme, where morgage levels dd no exceed 5% durng much of he las wo decades, wh ncreases o.4% only recenly (2002). The US and Span are n beween he morgage-o-gdp rao used o be hghes among he hree counres n he US (around 45% around a decade ago), bu has no seen as seep ncreases as Holland (58% n 2002). Spansh morgage deb relave o GDP has seen he mos specacular growh as fgures almos rpled beween 992 and 2002, from 2% o 32%. These (and smlar) sascs sugges ha hese four counres span much of he beween-counry dfferences n deb holdng n he OECD. TABLE 3 HERE In he remander of hs secon we gve a bref overvew of nsuonal and srucural facors ha may resul n dfferences n demand and supply (and so he volume) of deb held by households beween he four counres. There s an array of poenally mporan nsuonal deermnans, rangng from he way fnancal markes deal wh problems of asymmerc nformaon o provsons n he ax code o deduc neres paymens on deb held. Bu also he organsaon of he welfare sae and consumers audes and percepons may bear mporanly on consumpon behavour and he derved demand for deb. 3. Socal Income Insurance and Percepons of Income Rsk Boh Ialy and he Neherlands value socal secury hghly, albe wh dfferen mplemenaons of he socal nsurance and welfare sae. Ialy pus a srong emphass on sae old-age pensons, whle spendng very lle on unemploymen nsurance, whereas he Neherlands spend a comparavely large share of her socal budge on dsably nsurance (ha parly masks long-erm unemployably). For example, from OECD fgures (Socal Expendure Daabase) we calculae ha unemploymen spendng durng he perod was on average 2.3% of GDP n he Neherlands, 2.2% n Span, 0.9% n Ialy and 0.4% n he US, wh he maxmum duraon for such receps beng fve years n he Neherlands, wo years n Span, bu only sx monhs for Ialy and he US. European counres know exensve naonal healh care sysems (wh more emphass on ncome-relaed prvae healh nsurance n he Duch case). In he US, sae pensons wll make up mos of socal secury. See Kapeyn and Pans (2003) and Börsch-Supan and Lusard (2003), for more deal. Employmen proecon legslaon s mos srngen n Span, followed by Ialy and he Neherlands, leas n he US. Accordng o he OECD Employmen Oulook 2004, he US receves an ndex value of 0.7 on a 0-6 scale overall employmen proecon ndex and ranks las among 28 counres. Ialy and he Neherlands have ndex numbers of 2.4 and 2.3 and rank and 2, respecvely, Span ranks fourh wh 3.. Generally, layng off workers s comparavely easy n he US and relavely dffcul n all he European counres. Ye, a subsanal number of Spansh employees fnds work va emporary conracs, whereas he Ialan labour marke s characerzed by longer employmen relaons. Owng o nsuonal dfferences n wage seng, here s also much larger wage compresson n European

12 The desgn and coverage of socal nsurances would mply a greaer demand for deb for purposes of emporary consumpon smoohng n he US compared o he Neherlands and fnally, Span and Ialy. Smlarly, ceers parbus, wh more employmen secury n Span and Ialy han n he Neherlands and he US one would expec he supply of cred o be n hs rank order. Noe, however ha demand for cred for smoohng purposes also wll depend on he perceved ncome uncerany of consumers. Das and Donkers (999) compare European (Ialan and Duch) esmaes of subjecve percepons of ncome uncerany wh hose of he US and fnd perceved ncome uncerany n he Neherlands o le beween ha repored n Ialan and US sudes. Guso, Jappell and Psaferr (2002) focus on percepons of unemploymen rsk nsead. They, however, fnd he US and Ialy surprsngly smlar n erms of he dsrbuon of subjecve unemploymen probables. There s, o our knowledge, no comparave evdence for Span on hs maer. 3.2 Bankrupcy Legslaon and Usury Regulaon Bankrupcy legslaon can ac as wealh nsurance agans adverse shocks and hence ncrease he demand for cred. Ialan bankrupcy legslaon (unchanged snce 942) does no have formal provson for a consumer o be dscharged from bankrupcy, unless credors accep hs proposals for repaymen. Span has nroduced a new bankrupy ac comng no force per Sepember 2004 and coverng naural persons; he law does no explcly refer o consumer bankrupcy, however. Lkewse, n he Neherlands dscharge from bankrupcy for naural persons was no possble before 998. Afer ha dae, dscharge was allowed, condonal on adherng o a courapproved repaymen plan lasng 2 or 3 years. In he US, a debor can choose beween declarng bankrupcy under Chapers 7 or 3 of he Federal Bankrupcy Ac. Under he former, unsecured debs are dscharged, he debor urns over all asses o a Trusee bu s no oblged o repay debs ou of fuure earnngs. Under Chaper 3 a debor does no gve up hs asses bu mus propose a repaymen plan accepable o he debors or a bankrupcy judge. Proposed repaymens under Chaper 3 mus be a leas as much as under Chaper 7. Whle hese dfferences may pon o hgher demand for deb for US households, supply may lkewse be larger han n Ialy or he Neherlands: Whe (2006) argues ha he hgher he exempon he hgher he proecon, he lower he chance of defaul and he greaer he supply of cred. Exempons are hgher n he US han n Ialy and he Neherlands. 2 counres as opposed o he US. Berola and Rogerson (997) nvesgae labour marke urnover and wage compresson n a number of counres, among whch Ialy and he US. 2 Noe ha emprcal evdence for he US s equvocal as o wheher an applcan s more lkely o be urned down for cred n Saes where exempons are hgh. Gropp e al. (997) and Ln and Whe (200) sugges hey are, Berkowz and Hynes (999) sugges he oppose. Gropp e al. (997) sugges ha lenders ncreased supply o sasfy greaer demand by hgh asse households n hgh exempon Saes, bu dd no ncrease supply o low asse households. If hs were generalsable across counres, would sugges ha n he US here would be greaer supply and demand by hgh asse households han n Europe, bu ha supply n he US would no be greaer han n he European counres for low asse households.

13 Usury laws ha cap he neres rae a lender s allowed o se may be expeced o remove or reduce he nsurance facly for emporary ncome shocks ha consumer borrowng provdes (Glaeser and Schenkman 998), o reduce he supply of loans o hgh-rsk applcans (Canner and Fergus 987, Vllegas 989, Baxer 995) and o reduce he exen of adverse selecon and moral hazard. Ye, such lms appear o be of lle praccal mporance n he 990s n any of he counres under sudy. Usury lms were effecve n many US Saes, n Span, n he Neherlands, and (nroduced n 997) n Ialy. However, hese lms were ypcally oo hgh o be bndng (see Alesse, Hochguerel and Weber (2005) for he Ialan case). 3.3 Judcal Enforcemen and Informaon Sharng The cos of lendng, and wh he supply of loans s o some exen explaned by he cos of recoverng he prncpal from delnquen borrowers. The more effcen he judcal sysem o deal wh such cases, he lower he cos. Djankov, La Pora and Lopez-de-Slanes (2003) repor he duraon of dspue resoluon for wo clncal cour cases: collecng a bounced check and evcng a delnquen enan, for 09 counres. Ther daa convey ha for he check case, Ialy ranks 06 (645 days), Span ranks 39 (47 days) Neherlands ranks 4 (39 days), he US ranks 7 (54 days); for evcon, Ialy ranks 0 (630 days), Span ranks 5 (83 days), he US ranks 7 (49 days), he Neherlands rank 9 (52 days). Smlarly, he daa presened n Banco, Jappell and Pagano (2005) show a close smlary n erms of judcal effcency beween he Neherlands and he US a one end of he specrum, and Ialy and Span on he oher. Ialy and Span have long foreclosure proceedngs on morgages and low judcal effcency along wh a low rao of morgage deb o GDP and a hgh downpaymen rao, he reverse holdng rue n he Neherlands and he US. Jappell and Pagano (2002) assess he deph of cred nformaon sharng across many counres, accomplshed by cred bureaus. These ssue on average 2.3 repors per czen per year n he US, 0.64 n Holland, and n Ialy. Daa on Span are no avalable. Boh posve (ousandng deb and number of cred, asses held, bank relaonshps and so forh) and negave (repaymen delnquences, defaul, arrears) nformaon are colleced by such agences. Snce nformaon sharng may lm adverse selecon and moral hazard, and also ncrease compeon, he Ialan cred marke may be characerzed as beng relavely neffcen. However, cred bureaus are parly subsued by publc cred regsers ha have exsed n Ialy snce he 960s and n Span snce he 980s (and do no exs n he US or n he Neherlands). 3.4 Homeownershp and House Prce Developmens Wh he demand for consumer deb beng drven by he demand for durable and nondurable consumpon, developmens n ownershp raes and prces of he underlyng asses (or durables) wll play an mporan role. Home ownershp n he Neherlands has been ncreasng seadly from abou 42% n 980, o 45% n 990, and o abou 53% n recen years. Ths level s low n nernaonal comparson, bu mples ha he flow no home ownershp relave o he sock s mporan. The US radonally has

14 a home ownershp rae of abou wo hrds, wh an upward rend over he las decade (from abou 64% n 990 o abou 68% n 2002). Ialy s home ownershp rae has also ncreased subsanally, from 59% n 980 o 68% n 990 and o abou 80% n Span has had radonally he hghes homeownershp rae among our counres wh 78% n 990, rsng o abou 85% n Ye, hese changes do no ranslae one for one no house prce changes. Whereas he Neherlands, Span and he US have seen house prce booms over he las decade, Ialy experenced declnes n real house prces durng mos of hs perod, see Allen, Chu and Maddalon (2004). Whle he Duch house prce boom deceleraed n he las couple of years, Spansh daa reveal a connung, wo-dg annual rse unl recenly. If a rse n house prces s nerpreed as a permanen change o ne wealh, homeowners may wan o boos nondurable consumpon by means of home equy whdrawal. Secondly, frs-me buyers may have a hgher demand for morgages afer house prce ncreases (unless hey are dscouraged). Along wh hese developmens, morgage deb ousandng s hghes n he Neherlands, whereas he hghes growh n morgage deb o GDP s seen n Span (recall Table 3). These paerns are conssen wh morgage deb n Span and Holland beng drven by prce ncreases whle s deermned by changes n home ownershp n Ialy. In addon, home equy whdrawal relave o dsposable ncome mrrored he level of house prces for boh he Neherlands and US. In Ialy and Span, n aggregae, home equy whdrawal dd no occur. Bu he excess of ne lendng secured on dwellngs over nvesmen n hem became closer o zero whls house prces declned n Ialy and sayed farly consan whls house prces rose rapdly n Span (Allen, Chu and Maddalon 2004). One possble explanaon s ha a greaer proporon of homeowners n he US and Neherlands are cred or lqudy consraned han n Ialy or Span; anoher s ha collaeral dffers n mporance beween he former wo counres and Ialy because of dfferences n judcal coss. 3.5 Morgage Marke Insuons Whle house prces and home ownershp wll explan some of household deb holdng, oher characerscs of he morgage marke may be mporan. 3 Afer all, he ncdence of morgages among Duch households s hghes despe he homeownershp rae beng lowes among all our four counres. Down paymen raos are ypcally sgnfcanly hgher n Ialy (42% n 99-95) han n he Neherlands (25%), Span (20%) or he US (%) (Banco, Jappell and Pagano 2005). Conversely, he loan-o-value rao ends o be low n Ialy on average (55%), hgher n Span (70%) and n he US (78%) and hghes n he Neherlands (90%). Maxmum values wll depend on ndvdual lenders, bu he average maxmum wll agan be much larger n he Neherlands (0-5%, dependng on sources) han n Ialy (up o 80%) or Span (00%). Furher, ransacons cos such as legal expenses pad as a proporon of he morgage house prce are hgher n Ialy (8-20%) han n he Neherlands (%). The OECD (2004) suggess ha admnsrave coss of lqudaon are also hgher for Span han for he US, and hgher agan han for he Neherlands. Also, penales on early 3 Banco e al. (2005), Allen e al. (2004), Low e al. (2003) and Chur and Jappell (2003) repor on hese.

15 repaymen of morgage deb dffer beween counres. Low, Sebag-Monefore and Dübel (2003) repor for he Neherlands ha n pracce abou 5% of he loan ousandng s prepayable whou fee, whereas n Ialy a fee s charged amounng o o 2% of he capal repad. Prepaymen fees n Span are repored no o exceed 2.5%. Of furher mporance for morgage demand are he ypcal erm of a morgage (30 years n he Neherlands and he US, 20 years n Span and 5 years n Ialy), and he perod of fxed neres raes (n he US, Span and n Ialy, morgages are ypcally of he fxed-neres ype, whereas n Holland only an nal perod of, say, abou 0 years s fxed-neres). Fnally, some loans n he Neherlands are subjec o he governmen naonal morgage guaranee scheme whch underwres he loan o he lender so reducng he lender s rsk and consequenly neres raes. 3.6 Fnancal Sysems and Fnancal Lberalzaon Throughou he 990s here was no resrcon on he regonal ownershp of banks n our European counres. In he US, pror o he Regle-Neal Ac of 994, mulsae bank holdng companes had o apply o each Sae for permsson o own a subsdary bank n ha Sae. The Ac removed hs requremen wh he effec ha many mergers beween bank subsdares n dfferen Sae occurred and new braches opened. Evdence by Welan (2000) ndcaes ha hs mproved compeon for deposs and we mgh consequenly expec also an easng of consrans o borrowers. I may also have ncreased he use of rsk-based loan prcng. In addon, cred scorng echnologes are more lkely o have been passed beween banks n dfferen Saes. Low, Sebag-Monefore and Dübel (2003) characerse Ialan morgage lenders as havng hgh relave coss due o lack of auomaon and lack of economes of scale. Regulaons preven branch closures. Margns are relavely hgh bu enry by foregn banks s reducng hem. In conras, lenders n he Neherlands are more effcen, bu agan compeon and fees pad o nroducers are lowerng margns. Spansh morgages are characersed as beng subjec o ncreased prce compeon, whle enry of foregn compeors may be lmed due o provders cos n dealng wh regsraon and repossesson laws, and neffcences n nformaon sharng. In general, forces of European negraon are seen o benef compeon n all he European counres, however. 3.7 Taxes The four counres also dffer n he ax deducbly of deb neres. Boh he Neherlands and he US used o have consumer cred neres ax-deducble, along wh morgage neres, whle Ialy never had hs provson for non-morgage deb. Tax reforms have changed he pcure, however. The US 986 Tax Reform Ac, and smlarly he Duch 200 reform of Income Tax phased ou deducbly of consumer cred neres (see Mak (200) for he US). Boh he US and Duch ax reforms make he purpose of he loan decsve for ax-deducbly: he laer apples only where he loan s used for nvesmen (ncludng manenance) n he prmary resdence, and rrespecve of loan ype. Holland remans he only counry wh unresrced deducbly of morgage neres pad on he frs prmary resdence. In he US,

16 deducbly of home equy deb s furher capped by a celng of $00,000 ousandng per ax fler. In Ialy before 992 morgage neres was fully ax deducble up o In 992 he ax deducon was made a fxed percenage of he neres pad and hs percenage decreased from 27% o 22% n 997 and o 9% n 998. However Jappell and Psaferr (2004) found ha hese changes dd no aler he demand for morgages by hgh ncome ax payers relave o oher groups. Man reforms n ax code n Span durng he 990s relae o reducons n ax deducons for secondary and rened dwellngs. On he oher hand, mpued ncome from owneroccuped housng s no subjec o ax anymore. 4. Daa All four ndvdual daa ses are household surveys conduced under he auspces of naonal banks. We use a household panel daase for each of he Neherlands and Ialy and repeaed cross seconal household daa from he US. For he Neherlands we analyse he DNB Household Survey (DHS), whch s carred ou annually and conans a sample of naonally represenave households. Ths daa se surveys households on her wealh, deb, and porfolo poson, ncome, demographcs, labour force parcpaon and basc work characerscs, as well as a dealed ls of quesons concernng he occuped dwellng. Consumpon or expendure s no covered. In erms of overall daa qualy, Alesse, Hochguerel and van Soes (2002) assess he DHS daa as relable and reasonably good, wh shorcomngs on represenng appropraely he lowes and uppermos percenles of he wealh dsrbuon. 4 The daa consss of wo sraa: a represenave sample and a hgh-ncome sample. The former s represenave of he enre resdenal populaon (excep for nsuonalsed persons and households); he laer s ncluded o represen he upper decle of he ncome dsrbuon n For Ialy we use he Survey of Household Income and Wealh (SHIW), whch has been carred ou bennally snce 987, alhough s orgns dae back o 965. Comprehensve descrpons are gven by Brandoln and Cannar (994) and Guso and Jappell (2002). The samplng s n wo sages: frs muncpales are chosen from 5 sraa from hroughou Ialy and hen households are randomly chosen from regsry offce records whn each chosen muncpaly. The panel componen makes up 45% of he 995 sample, 43% of he 993 sample and 27% of he 99 sample. Deparng households from he panel are replaced. There s some mpuaon especally for wealh varables, bu mssng values reman. Our sample consss of he seven waves , coverng 5,400 households n he nal wave and around 8,000 n he remanng ones. A larger proporon of he households surveyed were 4 The DHS has been renamed a couple of mes. Unl 2002 was called CenER Savngs Survey. 5 The represenave sample s avalable for he years 993 hrough 2006 wh refreshmen samples drawn every year o replace arng parcpans; he hgh-ncome sample s followed whou replacemen and essenally s non-exsen from he survey wave 998 onwards. The represenave sample has a sze of abou 2,000 households each year; he hgh-ncome sample nally covered 900 households. In erms of cross-seconal base, he DHS s he smalles of he hree daases we use, mplyng ha he mpac of samplng nose may be hgher han n he oher wo surveys.

17 dscarded n 99 han n oher years because of parcular dffcules n hs year of ganng values for wealh. For he US we use he Survey of Consumer Fnances (SCF), he mos relable source of nformaon on household asses and debs, admnsered by he Federal Reserve Board. There are varous sources of descrpve maeral on he daa, he mos recen one beng Azcorbe, Kennckell and Moore (2003). The SCF s a repeaed cross secon rennal survey of households whch s nended o be naonally represenave of he dsrbuon on ne wealh n he US. The survey has a dual frame sample desgn: a mul-sage area probably sample and an oversample of hgh wealh households. The laer sample s drawn from a sample of ax fles. The former ypcally make up around 2900 households and he laer around 400 households. I s no possble o denfy households n he hgh wealh over sample. All mssng values have been mpued fve mes. In hs paper we use daa from 992, 95, 98 and 200 n our emprcal modellng o be conssen wh he chronologcal coverage for he Neherlands and Ialy and because one of our covaraes (age of chldren) s no dscernable n he 2004 survey. We also use he frs mplcae only. The daa from Span s drawn from he frs wave (2002) of he recenly launched Bank of Span s Survey of Household Fnances (EFF), whch has been modelled afer he SCF and also oversamples wealhy households whch canno be separaely denfed, alhough does no probe household fnances a que he same deph. The daa conans nformaon from respondens n 5,43 households. Descrpon and frs qualy assessmen are avalable n Bover (2004). Smlarly o he US daa, he EFF ncludes mulple mpuaons of mssng values, from whch we use he frs mplcae. The earles daa we use s for he early 990s, for he followng reasons: Frs, he Duch daa s avalable only from 992 onwards; second he Ialan daa does no conan suffcen quesons on wheher a household s cred consraned o be usable n 989, hrd he lack of daa on fnancal asses n he Ialan daa would make esmaes of wealh derved from very mprecse and fnally he panel componen of he SHIW was very small n 989. Moreover, household deb holdng really underwen he larges changes n he pas 5 years. 6 Imporan for our paper, all surveys conan comparable nformaon on households responses as o wheher hey were rejeced or dscouraged from applyng for cred and whls hs s no he only possble measure of wheher a household s cred consraned, we prefer such a measure over sample-splng exercses along he fnancal asse dsrbuon, as nally suggesed by Zeldes (989). We defne a 6 When referrng o parcular years, one remark s n order. In he abulaons o follow, a year label, such as 995 can refer o dfferen hngs. For nsance, n he Duch daa refers o he year when he nervew was conduced, and hence o all measures of background characerscs and he lke. Asses and lables (socks) are measured as per 3 December of he precedng year, however, and ncomes (flows) relae o he enre prevous year. Bu for he SHIW and he EFF, ncome relaes o he curren year and he wealh varables o 3 December of ha year. For he SCF ncome s measured for he prevous year whereas asses and lables are measured as per he curren year. As shall become apparen below, hese defnonal dfferences do no mpac on he conclusons we draw from he emprcal exercse.

18 household as reporng beng consraned or dscouraged when a leas one of he respondng adul members repors hs o be he case. A common dffculy wh nernaonal comparsons of household daa s ha many varables are measured dfferenly beween he counres and somemes even whn a counry (survey) over me. The daa Appendx defnes he varables we have used n our analyss. Educaon deserves specal aenon due o he large nsuonal varaon n educaonal sysems beween counres. The Table n he Daa Appendx lss he sx educaon caegores ha we can denfy n all counres and ha correspond o OECD (999) classfcaons of educaonal degrees. All educaon varables refer o he hghes qualfcaon for whch a degree was obaned. Two furher varables deserve commen. The ncome and age varables n he esmaed equaons are lnear splnes. The coeffcen for each such varable represens he change n he dependen varable for a small change n ncome or age whn ha parcular ncome or age range (see Appendx). The ncome splne knos were se o have sx equally populaed groups n each counry n a parcular year. Second, we ncluded permanen ncome as he dfference beween curren ncome and permanen ncome. The PIH argues ha when hs dfference s posve, households wll demand less deb belevng her fuure ncome wll fall and vce versa. For Ialy and he Neherlands, where we have panel daa, we esmaed permanen ncome followng he approach employed by Kapeyn, Alesse and Lusard (2005). In hs mehod, permanen ncome s found by esmang non-capal ncome a age a a me +j, a +j, for each age usng a random effecs model and hen fndng he annuy value of hs assumng s receved up o age 65. For he US and Span, where panel daa are no avalable, we used he mehod of Kng and Dcks-Mreaux (982). 7 For purely emprcal reasons (achevng a beer for models f o hghly skewed daa), we employ a log-ype ransformaon on wealh, ncome and he dfference beween ncome and permanen ncome Deb Holdngs We now urn o he paerns of household deb holdng over me. Table 4 shows he ncdence, mean and medan household deb over all households n 992 Euros for each counry. 9 The proporon of households wh any form of deb (Table 4a) s around en percenage pons hgher n he US han n he Neherlands and boh are consderably hgher han he percenage of Ialan households wh deb. The ncdence n Span s mdway beween ha of he Neherlands and Ialy. Of course, here are slgh dfferences n he ypes of deb measured n he surveys. For example, o presen fgures for a run of years we have excluded loans from relaves and frends from he Ialan daa, bu hs n no way alers hs concluson. These relave proporons for he US, he Neherlands and Ialy seem o have remaned consan over he whole of he 990s. The dfference beween he proporons of households 7 We gnore cohor effecs n any of he permanen-ncome calculaons. 8 The precse ransformaon employed s x = log( x + ) f x 0 and x = log( x +) f x < 0. I s ansymmerc and preserves zeros and sgns of x. I s an alernave o he nverse hyperbolc sne ransformaon ha s occasonally used n relaed leraure. 9 Ialy, Span and he Neherlands nroduced he Euro on January, 999. We use he offcal changeover converson raes from naonal currences o Euro for Ialy and he Neherlands, and for he US.82 dollars per Euro. All amouns have subsequenly been deflaed o 992 usng naonal CPIs.

19 wh morgages s even greaer han for any form of deb. The percenage of US households havng a leas one morgage s only slghly hgher han he percenage of Duch households. Bu hese proporons are consderably hgher han n Ialy, where he percenage of households wh a morgage s around a quarer of ha n he Neherlands and US, and Span where he proporon s jus over half ha of he US. A smlar paern holds rue for non-morgage deb. TABLES 4a-c HERE If we consder rends whn he US, Neherlands and Ialy we can see ha he proporon of households wh any deb ncreased from he begnnng of he decade unl around 2000 and hen seems o have decreased somewha n Holland; n Ialy he ncdence has decreased slghly whereas he proporon of US households wh any form of deb has remaned farly consan unl around 2000 and hen ncreased. However hese rends n he holdng of any form of deb mask dfferences beween he counres when we look a specfc ypes of deb. The proporon of households wh a leas one morgage remaned farly consan n he Neherlands bu seems o have decreased slghly and recenly ncreased n Ialy and has conssenly ncreased n he US. The percenage wh oher ypes of deb has decreased n he Neherlands over he years, whereas remaned roughly consan n he oher wo counres. No only do a smaller percenage of Ialan and Spansh households hold deb, bu he average amoun of deb ousandng per household s consderably lower n he wo Mederranean counres han n eher of he oher counres, as Table 4b shows. The average amoun of deb per household n he US s en mes ha n Ialy, fve mes ha n Span and ypcally over 33% hgher han ha owed by Duch households. Ths dfference s manly due o he dfferences n morgage deb held and less due o dfferences n non-morgage deb. For example, n he frs half of he 990s and early n he 2000s he amoun of non-morgage deb nsalmen loans, cred card deb, educaonal deb and so on n he Neherlands was around wce ha held by Ialan households. Non morgage deb held by Spansh households was very smlar o ha n Ialy. All hree were around one hrd of he deb owed by US famles. Of course, snce he dsrbuon of deb owed s very posvely skewed, n Ialy he medan of oal deb owed s zero. The same holds for he oher counres for he lessprevalen subcomponens. Table 4c shows he medan values of deb owed by hose who have deb. Ths shows a subly dfferen pcure. In he frs half of he decade he medan deb owed, by hose who have deb was acually larger n he Neherlands han n he US, hough hs rankng s reversed by The medan deb n Ialy was around a quarer of ha n he Neherlands wh Spansh households holdng an amoun closer o Ialan households han o Duch households. Medan morgage deb ncreased much faser n he US han n Holland, however wh he growh beween 200 and 2004 n he US beng parcularly large. The growh of medan morgage deb n Ialy has also been rapd; ncreased by over 0% n real erms beween 995 and 2004, bu was always beween a quarer and a hrd of ha for Duch households. Only n 2005 and 2006 do we see condonal medans surgng n Holland. These dfferences are arguably caused by a combnaon of demand and supply facors. Table 5 nvesgaes hs furher. Ths Table shows ha he percenage of

20 households ha apply for any form of deb n Ialy s consderably lower han he percenages n he Neherlands or Span, whch n urn are only a hrd of he percenage n he US. However, an mmedae cauon s necessary: he US fgures show he proporon ha appled for cred n he prevous fve years whereas he Duch and Spansh fgures relae o he prevous wo years and he Ialan ones o he prevous 2 monhs. Due o he unknown seral annual correlaon a he household level n each counry, we canno smply dvde he US fgure by fve and he Neherlands and Span fgures by wo. However, whn counres, we see ha proporons sayed consan n he US n he 990s and hen ncreased consderably, whls hey have ncreased only moderaely he Neherlands and have declned slghly n Ialy. TABLE 5 HERE The proporon of applcans who are rejeced by a lender s much hgher n he US han n Ialy, bu hgher n Ialy han n he Neherlands and Span. So, dfferences n deb ncdence beween he US and Ialy or beween he US and he Neherlands do no seem o be due o a hgher rejec rae n Ialy or n he Neherlands. Bu he hgher ncdence n Span han n Ialy could be due o he lower rejecon rae n Span. We can also compare he proporon of households who are eher rejeced or dscouraged from applyng for a loan over he decade as shown n columns 9-2 of he Table. Bu we mus noe ha a household who s no rejeced may eher have appled and been acceped or may no have appled. These columns merely show he ncdence of hose households who have been rejeced or dscouraged. Ths percenage s en mes hgher n he US han n Ialy. The Duch and Spansh fgures are a low levels bu hgher han he Ialan ones, and for Holland ncrease over me. So, f hs measure s aken as ndcave of wheher a household s cred consraned hen such consrans affec a much greaer percenage of he US households han of Ialan, Spansh or Duch households. Boh he lower ncdence of deb n Ialy and he lower volumes of deb owed are conssen wh he nsuonal dfferences beween he counres whch we noed n Secon 3. Thus, par of he explanaon for he lower deb n Ialy s arguably due o he hgher down paymen requremens for house purchases (see Guso, Jappell and Terlzzese 994). Bu hs evdence s no conssen wh he argumen ha he greaer judcal coss n Ialy are counered by Ialan lenders only lendng o lower rsks han are acceped by lenders n he US, he Neherlands or Span. Of course par of he explanaon for he dfferences n he ncdence of deb may be ha s due o ner-counry dfferences n household audes o rsk, me preference rae, reremen ncome replacemen rae, neres rae and/or ncome shocks, as Table 2 suggess. For example, he ncdence of deb holdngs s predced o be lower f he ncome growh rae s lower, he neres rae s hgher, households are more rsk averse or he ncome replacemen rae s lower. Tables 6a and 6b compare he characerscs of he heads of households ha hold deb wh hose who do no. In he Neherlands here seems o be no large dfference beween he average age of hose who hold deb and hose who do no, whereas n Ialy deb holders are nne years younger han hose whou deb, n Span seven years