Jonathan Crook 1 Stefan Hochguertel 2

TI 2007-087/3 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.

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)20 55 3500 Fax: +3(0)20 55 3555 Tnbergen Insue Roerdam Burg. Oudlaan 50 3062 PA Roerdam The Neherlands Tel.: +3(0)0 408 8900 Fax: +3(0)0 408 903 Mos TI dscusson papers can be downloaded a hp://www.nbergen.nl.

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.

. 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).

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.

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 ( ), ) ( ) ( ) ( 2 0 + + = + 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

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

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.

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).

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

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 990-200 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

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.

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 0.046 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

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 2002. Span has had radonally he hghes homeownershp rae among our counres wh 78% n 990, rsng o abou 85% n 2002. 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.

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,

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 3500. 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 992. 5 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 99-2004, 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.

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.

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. 8 5. 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.

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 2004. 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

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

younger and n he US deb holders are hree years younger. In erms of many oher household characerscs here s a clear paern whch s common o all four counres. Those households wh deb have a larger famly sze, more chldren, are more lkely o have a pad job, less lkely o be rered, more lkely o be self employed, less lkely o be sngle, more lkely o be marred, less lkely o be female and more lkely o be beer educaed and on average have a hgher ncome. TABLES 6a-b HERE As o he ner-counry dfferences, he average age of he household head wh deb n he Neherlands s slghly hgher han n Ialy, Span and he US. The famly sze and number of chldren for hose wh deb s noceably hgher n Ialy han n he Neherlands or he US. Among hose wh deb, he percenage ha are self employed s much hgher n Ialy (around 23%) han he US and Span (around 2%) and he Neherlands (around 5%). Clearly, he naonal averages of self-employmen are much hgher n Ialy han n he US, Span and he Neherlands, bu he comparson reveals ha Ialan self-employed are much more lkely o be debors han her Duch, Spansh and Amercan counerpars: here are almos wce as many self-employed n he Ialan debor sample compared o he overall sample, bu only weny percen more for he cases of Holland, Span and he US. Subsanal dfferences also occur beween he US, Ialy and Span on he one hand he Neherlands on he oher n he educaonal conrass beween hose wh and hose whou deb. The more hghly educaed households n he US, Ialy and Span are more lkely o be deb holders han n he oher wo counres; he proporon of deb holdng households wh a degree s a leas en percen above ha of hose whou deb for he US, Ialy and Span, bu no dfferen for Duch households. 6. Demand for Household Deb and Cred Consrans Ths secon skeches an emprcal approach o modellng observable daa srucures. We hnk of observed deb holdng as resulng from a mul-sage decson process where noonal demand, o he exen ha s posve, s poenally raoned by supply. The columns of Table 7 correspond o hs layered srucure. TABLE 7 HERE To begn wh, households may or may no have a demand for deb or cred. For example he precauonary model predcs ha hose ha do no may be a parcular sages of her lfe cycle (for nsance, rerees), hey may be suffcenly paen, her ncomes may perhaps no grow enough, or, perhaps less realscally, hey mgh face real possbles of oal ncome loss (Carroll s ncome process). Such households wll have a zero observed demand for cred. On he oher hand, f one nerpres desred demand for deb as a connuous varable may acually be negave. Those ha wan a posve amoun of deb or cred may acually no apply for a loan because hey are dscouraged by he prospec of possble rejecon. Wheher or no such households have he rgh pon expecaons as regards her probably of beng rejeced s mmaeral for our purposes; as a maer of fac, such households do exs.

Condonal of no beng dscouraged, applcans wh a posve demand for cred would apply for a ceran loan. Those ha are dscouraged (and whose demand s posve by defnon) wll no apply for ha same loan. (Of course, here may be people ha are dscouraged for one ype of loan and no for some oher). In oher words, gven a loan ha a household wh a posve demand can apply for, hese wo decsons are he same. Those ha apply may be rejeced by he lender. The applcaon may be enrely urned down, or may be parly rejeced n he sense ha only par of he loan amoun appled for s graned. Summarzng, here are varous ways o generae zero observed deb holdng. Households wh posve observed cred wll need o wan, no be dscouraged bu raher make an applcaon, and no be rejeced by he lender 0. To focus deas, an emprcal model may encompass he followng equaons d l d * a c * * = β x = γ z = γ z 2 = γ z 3 2 3 + α + ε + α + ε 2 3 + α + ε + α + ε 2 3 he demand for deb posve deb selecon equaon applcaon selecon equaon cred consran selecon equaon (6.) (6.2) (6.3) (6.4) d where d denoes he demand for deb by household, and x s a vecor of varables ha explan demand by household. The α are household-specfc, me-nvaran effecs and capure facors lke household-specfc neres raes, margnal ax raes, preferences, lender s rsk assessmen of he applcan (raher han he applcaon), and so on. Of course f we esmaed he parameers of equaon (6.) usng only hose households of row n he able and he error erms n he four equaons were correlaed, hen sample selecon based would resul. 0 In all four daa ses we observe he deals on wheher or no a household holds any deb (ncludng he srucure of deb porfolos), he amouns of deb ousandng, wheher or no a household has appled for cred n he recen pas, wheher or no applcaons were urned down, and wheher or no households refraned from applyng n ancpaon of rejecon. However, boh heorecal reasonng and he emprcal srucure skeched above are cas n erms of a parcular cred conrac wh a gven neres rae abou whch a decson s made a a parcular pon n me. Daa quesonnares are ypcally no as precse and do no mee hs condonng. For he US and Neherlands a household may herefore be observed o be dscouraged and ye apply, be rejeced, and ye oban a loan of desred sze possbly a a dfferen neres rae or from a dfferen lender or a a slghly dfferen pon n me. In addon, cred applcaons may be undersood as referrng o a flow concep (addon o deb) raher han he sock of deb ha we observe n he daa. If we measured he flow by he change of he sock over me, our framework would sll apply. Flows can, however, also be negave when repaymens on he deb ousandng are made. In he Table, he dfference beween he las wo lnes s ha he penulmae row only apples o he demand for a sock of deb whereas he las lne relaes o he demand for a flow of ne cred exended. Oher rows may equally apply o flow or sock conceps. In he case where he household wshes negave deb, only zero deb s observed.

There are several possble ways o see he model and nerpre wha we observe n he daa. For nsance, f he model s equaons are (6.), (6.2) and (6.4) we mgh observe d d only f households hold posve deb and are unconsraned. The las equaon allows, n prncple, people o be rejeced ha have no appled, snce he applcaon decson s no separaely modeled. If he equaons are (6.) and (6.4) and he demand equaon s modelled as a ob (.e., equaon (6.2) s no separaely specfed), we assume he same process o deermne he unconsraned zeros as he posve observaons. There are varous oher possbles of alorng he model o he daa. In each case, nerpreaon of he parameer esmaes wll change. For nsance, Duca and Rosenhal (993), Cox and Jappell (993) and Crook (200) esmae equaons (6.), (6.2) and (6.4) usng cross seconal daa only. Noce ha wheher a household desres posve deb or no wll generally be correlaed wh wheher he household apples or no snce one mgh assume ha many of hose who desre deb wll apply, unless ransacons coss make applcaon undesrable or a household beleved would be urned down. 7. Emprcal Resuls 7. Esmaors and her Implemenaon The varous models presened n he prevous secon may n prncple be esmaed on he avalable daa. If we make dsrbuonal assumpons on boh dosyncrac errors and random effecs, we can esmae he models by maxmum lkelhood (ML). However he derved ML esmaors yelded mplausble parameer esmaes for Ialy and he Neherlands, possbly ndcang ha one of he selecon channels plays a mnor role. Ths s conssen wh he relavely few rejeced or dscouraged cases. In order o presen esmaes ha can be meanngfully compared across counres, we herefore confne ourselves o sngle equaon models. Here, we assume he household s uly from makng an applcaon depends on exogenous varables Ths esmaor has preferred asympoc properes ncludng effcency, condonal on beng correcly specfed. The mos convenen dsrbuonal assumpon o make s ha of mulvarae normaly, because hs economses on he number of dsrbuonal parameers o be esmaed whle beng enrely flexble as regards beween-equaon correlaons. In addon, all margnals and condonal probables wll be normal as well whch s convenen for compuaonal purposes. For mplemenaon, we chose o rely on graden-based algorhms ha requre frs analycal dervaves. Solvng he problem proceeds eravely. Sarng values can be obaned from smplfed models ha oban under parameer resrcons from he more general ones skeched above. Snce he lkelhood funcon requres mulvarae negraon, we consdered maxmzng a smulaed lkelhood funcon where he negral s replaced by a sum over smulaed probables ha oban when he random effecs are drawn from he dsrbuon whose parameers we esmae along wh he coeffcens on he regressors. Durng eraons appeared ha esmang hese farly general models wh unresrced beweenequaon correlaon srucure of he compose errors s askng oo much from boh he Duch and he Ialan samples. Especally wh he Ialan daa we found ha beween-equaon correlaons and varances would run off o he boundares of he parameer space and evenually preven he algorhm from fndng a soluon. In he Duch case, we were able only o esmae a subse of he correlaons, whch however were no sgnfcanly dfferen from zero.

whch he leraure has suggesed affec he desred volume of deb from he PIH. These varables are log curren ncome, log dfference beween curren and permanen ncome, age, and log ne worh, and also ase shfers whch may affec he parameers of a household s uly funcon: number of chldren of dfferen ages, maral saus, level of educaon, occupaonal saus and gender. We have used he same varables for all four counres where possble. In addon, we conrol for me and regonal effecs whou reporng hem. In addon, for he Uned Saes sample, as s a repeaed cross secon, conssen wo-sep esmaors for a leas some of he selecon models consdered do exs. In hs case we assume he model o conss of equaons (6.), (6.2) and (6.4) (excludng he random effecs): d l d * c * = β x = γ z = γ z 3 3 + ε + ε + ε 3 he demand for deb posve deb selecon equaon cred consran selecon equaon (7.) (7.2) (7.3) We pooled hose who were dscouraged from applyng ogeher wh hose who were rejeced snce n hs case also observed deb devaes from desred deb. So we have rows, 2 (combned wh 3) and 4 n Table 7 wh demand unquely observed only for row. Noce ha he errors of equaons (7.2) and (7.3) may also be correlaed. We followed he mehodology of Tunal (986) o esmae he parameers of hs model (full deals n Appendx 2) by OLS from he followng second-sage equaon: d β x + σ λ + σ λ error (7.4) d = ε ε + ε ε ε ε 3 ε ε 3 where λ ε ε and λ ε ε 3 are he analogues of nverse Mll s raos whch are esmaed from a frs-sage bvarae prob wh selecon conssng of equaons (7.2) and (7.3). Conssen sandard errors for equaon (7.4) were obaned by boosrappng he esmaes 000 mes. Snce we are usng he selecon equaons merely o remove sample selecon bas n he parameers n equaon (7.), and snce more varables are avalable for he US han for oher counres, we can rely on a larger se of excluson resrcons han would appear from he sngle-equaon esmaes ha we presen for he oher counres. 7.2 Cred Applcaons Table 8 shows he resuls for applcaon decsons. Whn he 990s nformaon on wheher a household made an applcaon s avalable only from 995 onwards n boh he US and Ialy. Noce ha he random effec for boh he Neherlands and Ialy conrbues a sascally sgnfcan amoun of varance o he overall varance. In all counres, greaer ne worh reduces he probably ha a household wll apply for any form of deb. However he margnal effec for Span s hree mes ha for he Neherlands whch n urn s roughly double ha for Ialy and he US. The ncome paerns n all counres are dffcul o characerze precsely, as we fnd he esmaed splne funcon o change graden, and somemes drecon n nonunform ways. The overall mpresson s, however, ha curren ncome ncreases he probably of

applyng for loans n he European counres, whereas we see sgnfcanly negave mpacs of ncome for he upper par of he ncome dsrbuon n Amerca. TABLE 8 HERE We conrol for he level of permanen ncome n hese specfcaons by way of ncludng he dfference beween curren and permanen ncome. The reason for dong so s ha demand for cred accordng o he PIH would be affeced by changes n permanen ncome, once levels of ncomes, wealh, and demographcs are accouned for. There appears o be no effec for Ialy, Span or he Uned Saes. For he Neherlands, however, havng curren ncome exceed permanen ncome wll decrease he probably of applyng for new loans. On he background of he smple PIH sory old above, hs may be conssen wh Duch households nerpreng a posve devaon from permanen ncome as a emporary ncome shock as s effec on consumpon wll be lmed. Age of he household head dsplays pronounced paerns n all four counres. To he exen ha he margnal effec esmaes are sgnfcan we observe a decreasng probably of applyng wh age. The age graden ncreases (n absolue value) for boh he US and Ialy: as household heads become older hey are ncreasngly less lkely o apply for a loan. Ths resul conforms wh he nuon provded by he sandard consumpon models. We should add, hough, ha we have no conrolled for cohor effecs, whch may lead he age coeffcens o devae from rue lfe cycle profles. Neher n Ialy, Span nor n he Neherlands s here an effec of educaonal aanmen on he probably of applyng for cred. Ths s dfferen n he US, where here s a greaer probably ha hose who have a unversy degree or have ganed vocaonal ranng wll apply han he chance ha hose wh merely prmary or secondary school educaon. If educaon proxes ncome growh, we mgh expec such a paern (alhough we do no conrol for me preference). Famly composon may maer because he presence and number of chldren, as well as her age may affec he margnal uly of consumpon over he lfe cycle n predcable ways. We see ha her mporance dffers across counres. Number of chldren a dfferen ages ends o be mporan n Ialy. Such effecs are no observed for he oher hree counres. Par of hs dfference for he oldes age group, may be due o a slgh dfference n he queson asked. In he US and he Neherlands he quesonnare asks wheher he responden or spouse appled whereas n Ialy he quesonnare asks wheher he household appled and n Span he subjec could be eher. 2 So n Ialy and possbly Span he effec of older chldren applyng for loans o fnance her personal consumpon may be couned owards a household cred applcaon. A furher sgnfcan dfference s found for sngle person households who are less lkely o apply han couples n any of he counres (no sgnfcan n Ialy). Clear dfferences are apparen n he effecs of occupaonal saus on he probably of applyng. Compared wh havng a pad job, beng unemployed reduces he 2 The relevan queson asks How many loan applcaons have you made n he las wo years (ncludng applcaons o refnance prevous loans)? (p23) where you could be sngular or plural.

probably of applcaon n he Neherlands and US, wh a much larger margnal effec n he US han n he Neherlands. Unemploymen has no effec n Ialy bu ncreases he chance of an applcaon n Span. For he US, havng an occupaon whch does no gve an ncome, beng rered, or beng dsabled reduces he probably ha a household wll apply, compared o hose wh a pad job. In he European counres no oher ypes of occupaon have an effec on he probably of applcaon. Furher, regon and me effecs are ncluded bu no repored n he able. In Ialy here was a greaer chance a household would apply n 998 han n 995, and a lower chance n 2002. In he US no dfferences beween he years n he 990s were deeced. Fnally he probably a household from he Souh or from he Norh Eas of Ialy wll apply s lower han he chance a household from he Cenral regon wll apply. Wh evdence from Fabbr and Padula (2004) ha judcal coss are hgher n he Souh of Ialy han n he norhern regons he lower applcaon probably n he Souh may be due o banks requrng a hgher depos or chargng a hgher neres rae han nsuons elsewhere n Ialy. Obvously hs would no explan he lower applcaon rae n he Norh Eas. Regonal effecs are also deeced n he Neherlands, alhough hey do no lend hemselves easly o nerpreaon. We canno conrol for regonal effecs n he SCF or for Span. 7.3 Cred Consrans To nvesgae wheher he characerscs of cred consraned households dffer beween counres and over me we agan esmaed random effecs probs for he Neherlands and for Ialy, a prob for Span and pooled probs for he US. We used he same explanaory varables as before. Snce all of hese varables would also ener a cred scorng equaon (Crook, Thomas and Hamlon 992) he esmaed parameers canno be nerpreed as hose of a demand or of a supply equaon, bu merely as he dfference n parameers beween ha n each of a demand and a supply equaon. We esmae hree separae equaons. In he frs we model he probably ha a household s rejeced or gans only a par of her applcaon, condonal on havng appled. We have done hs for all counres excep Span because he very small number of consraned households frusraed our aemps o gan plausble resuls. Second we consder all households and dsngush beween (a) hose who appled and were rejeced or ganed only par of he amoun hey appled for or hose ha dd no apply and were dscouraged from applyng because hey hough hey would be urned down and (b) all ohers. Thrdly we consder all households and dsngush beween (a) hose who repor ha hey have been rejeced or unable o gan he enre amoun hey appled for or who repor ha hey were dscouraged from applyng and (b) all ohers. Because of he quesonnare desgn he second and hrd defnons denfy he same households as beng consraned n Span and also n Ialy 3 and so resuls for he hrd defnon relae only o he Neherlands and US. 3 In he Spansh EFF a household can be denfed as dscouraged only f dd no apply. The same apples n he Ialan SHIW (afer 993).

The frs equaon mrrors a srngen defnon of beng cred consraned n he sense ha one can only be consraned f one acually apples for cred and s rejeced. The second defnon s somewha laxer snce ncludes as consraned hose who dd no acually apply bu who wshed o have cred neverheless and dd no receve. Such households may or may no have had an accurae expecaon as o he reacon of a lender. Bu he pon s ha hey dd no gan all of he cred hey wshed o oban. The hrd defnon s conssen wh he defnon adoped by Cox and Jappell (993), Jappell (990), Crook (996) and Crook (200). We argue ha boh defnon and 2 are a more reasonable nerpreaon of beng cred consraned han ceran ohers. For example, Duca and Rosenhal (993) esmae he probably of beng cred consraned usng he above second defnon appled only o a sample of debors. Bu f a household s applcaons were all rejeced hs household would no appear n her sample of households who are cred consraned. Tables 9 a, b and c show he esmaed margnal effecs a he means for he hree defnons respecvely. 4 For he Ialan daa he random effec makes no conrbuon o he resdual error of each equaon and he same parameer values for each equaon would resul f he observaons were all pooled over me. Turnng o he resuls for he frs defnon (Table 9a) we see ha here s a lower probably ha wealher Duch or Amercan households would be rejeced han lower-wealh households, bu hs was no found for Ialan households. A negave effec s enrely expeced: wealher households have more collaeral and may demand less deb, bu he margnal effec s much greaer for US households han for Duch households. TABLES 9a-c HERE The effec of ncome also dffers beween he counres. In he Neherlands and Ialy has no separae effec whls for Amercan famles he chance of rejecon decreases for he hrd, fourh, and ffh qunle groups. Ths general effec s conssen wh cred scorng models ha fnd ha ncreased ncome reduces he rsk of defaul. Perhaps one of he mos mporan resuls s ha he greaer he amoun by whch ncome exceeds permanen ncome he greaer he chance a household s cred consraned. Ths was found for hree counres (alhough he Duch coeffcen s no sgnfcanly dfferen from zero). Ths could be because he greaer s ncome relave o permanen ncome he ncrease n a households demand for deb exceeds he ncrease n amoun lenders are wllng o supply. Bu we know from Table 8 ha (excep for he Neherlands) an ncrease n excess ncome has no effec on he chance a household makes a cred applcaon, so perhaps he effec s on he volume demanded by hose who do apply. I seems hghly unlkely ha an ncrease n excess ncome would ncrease he rsk a lender may assocae wh an applcan, hough s possble when lenders beleve ha excess ncome s ndcave ha fuure ncome wll be lower han curren ncome (mean reverson). However, here s no repored evdence n he leraure ha lenders behave n hs way and much nformal evdence 4 Esmaed coeffcens and sandard errors are avalable from he auhors on reques.

ha hey do no. Bu f excess ncome ncreases he demand for he volume of deb, hs does no seem o be conssen wh he PIH. Of course here are many nerpreaons of he erm permanen ncome and our las saemen can only be made for he nerpreaon mplc n he measure of permanen ncome ha we have used. Our resul would seem o be conssen wh he excess sensvy fndngs common n sudes ha use aggregae daa. The effec of age appears o dffer beween he hree counres. In boh he Neherlands and Ialy, age of he household head does no appear o affec rejecon sgnfcanly (pre-reremen Duch households beng he excepon). In he US, ncreased age whn one s 30s and over 65 years reduces he chance of beng urned down. I s no mmedaely obvous why hese dfferences beween counres occur. On he supply sde, cred scorng models for wesernsed counres generally fnd ha age s negavely relaed o he chance of defaul (Crook, Thomas and Hamlon 992). Indeed he Equal Cred opporunes Ac 974 n he US requres lenders o consran rsk assessmen models whch nclude age such ha applcans over 62 years are regarded as of lower rsk han younger applcans. So perhaps he age afer whch defaul rsk falls dffers beween he counres. Perhaps hs effec begns n he early 30s n he US, whereas n Ialy, where cred scorng models were nroduced laer han n he Neherlands or he US, age may no formally ener cred rsk assessmen procedures. On he demand sde all combnaons of parameers of he precauonary model predced ha he percenage of consraned households would decrease as age ncreases (Table 2). However oher models of consrans mgh usefully be ncluded n he model. Educaon s only sgnfcan for he US agan, where he esmaon samples are also larger. Havng compleed hgh school or havng ganed a vocaonal qualfcaon ncreases he chance of beng rejeced. The effecs of he number of chldren dffer beween he counres. Amercan and Ialan households wh more kds n he 7-2 years or 3-9 years age groups face a hgher chance of beng urned down and hs exends o Amercan famles wh kds ages 7-9 years bu no o Ialan households, and age of kds has no effec on he chance ha a Duch household would be urned down. Turnng o occupaonal saus we agan see some neresng dfferences. In he Neherlands, no havng a job whch provdes ncome ncreases a household s chance of beng urned down whereas n he US acually reduces hs probably and n Ialy has no effec. Dsably appears o ncur rejecon n boh US and Holland. In he US bu no Ialy or he Neherlands, beng rered reduces he chance of beng rejeced. In he US bu n neher European counry beng female reduces he chance of beng consraned whereas n Ialy, unlke he Neherlands or US, beng sngle s dsadvanageous. In he US sngle parens seem o have a hgher chance of beng urned down, bu hs was no found n he Neherlands or Ialy. Fnally, regonal dfferences (no repored n he Table) become apparen n he Neherlands bu no n Ialy. The absence of an effec for Ialy means we should be cauous n concludng ha hgher judcal and enforcemen coss n he Souh of Ialy cause lenders o rejec a hgher proporon of cred applcans.

When we nclude hose famles ha were dscouraged and dd no apply no our defnon of beng cred consraned we gan essenally smlar resuls (Table 9b), alhough he sample szes ncrease subsanally and we are able o compare wh Span. The dfferences n resuls compared wh hose n Table 9a for he US, Neherlands and Ialy are as follows. When dscouraged famles are ncluded, wealh becomes sgnfcanly negave for Ialy, suggesng ha he less wealhy are dscouraged from makng cred applcaons. Ths s also our concluson for Span and so for all four counres. Income s no longer sgnfcan for Ialy and s no sgnfcan for Span. The effec of a greaer excess ncome s posve and hghly sgnfcan for Ialy, he US and he Neherlands, bu has no effec n Span. Includng he dscouraged would also aler our conclusons abou he effec of age and educaon. The effec of age reducng he chance of beng consraned s much more apparen wh he effec occurrng durng one s 30s amongs Duch and US households and n one s 40s amongs Ialan famles. Households wh heads over 50 years n he US and over 65 years n Ialy face furher reduced chances of beng consraned. Turnng o educaon, he somewha more hghly educaed (educaon class 6) are less lkely o be dscouraged (or rejeced) n he Neherlands, and n Span hs s generally rue for hose ha compleed her educaon afer prmary level. For Amercan famles ncludng he dscouraged leads o he ncreased chance of beng consraned o exend o hose ha compleed her educaon afer jus prmary level, a clear conras wh he effec for Span. Agan o nerpre hs resul we need o know he effec of educaon on he volume of deb demanded. Includng he dscouraged would also aler our conclusons on he effec of he number of chldren. The US and Duch resuls reman he same. In Span lke n he Neherlands number of kds has no effec. Bu now on average an Ialan famly wh more chldren n he age range 7 o 2 years or above 20 would face a greaer chance of beng consraned, jus as n he US. As before, a dfference n erms of quesonnare may conrbue o he dfference, especally for older chldren: Ialan chldren end o lve wh her parens unl her hres whle ryng o fnd ndependen housng and applyng for morgages. Askng f a member of he household had been dscouraged from applyng combned wh he hgher deposs requred by morgage granors n Ialy han elsewhere may dsproporonaely pck ou famles of hose ype of young would-be home owners. Adopng he second defnon of beng cred consraned does no aler our fndngs on he effecs of dfferen occupaons wh he excepon ha a Duch household s more lkely o be cred consraned f s head s self-employed compared o beng an employee. Ialan and Spansh households are more lkely o be consraned f he head s unemployed. Clearly beng unemployed dscourages Ialan households from applyng. Regonal dfferences do become mporan n Ialy when he dscouraged are ncluded and hey reman sgnfcan n he Neherlands. In Ialy, we fnd ha he average famly lvng n he Norh Wes or Souh or he Islands has a lower chance of beng consraned han one lvng n he Cenral regon. Ths resul appears o conradc he fndngs of Fabbr and Padula (2004) ha hgher judcal coss n he Souh ncrease he chance of beng consraned.

If we compare our resuls wh he leraure, he paper wh he closes defnon o our second defnon s he one by Duca and Rosenhal (993) usng he 983 SCF. They fnd none of he varables we have ncluded o be sgnfcan. Bu her sample dffers consderably from ours (apar from he me perod). We nclude all households whereas hey nclude only households where he head s aged under 35 years, wh wealh no more han $m and who are no n he hgh ncome over sample. Moreover hey esmae her model over households ha have posve deb whereas we esmae our resuls from households who appled n he prevous fve years. Magr (2002) consdered he 989, 995 and 998 waves of he SHIW and found ncreased ncome and beng self-employed ncreased he chance of beng consraned whls beng marred reduced he chance. Our hrd defnon of beng consraned (Table 9c) denfes hose households ha were rejeced or dscouraged (regardless of wheher hey appled or no). Remember ha households ha dd no say hey fed no eher of hese caegores may have no wshed o have any deb, whereas hose who dd reply affrmavely ceranly dd wsh o have cred. Snce we are no makng he defnon condonal on havng appled or no appled for cred we can nclude an addonal year (992) n he US sample. Our fndngs here are very smlar o hose for he las defnon (Table 9b), and we hghlgh some of he dfferences. For he Duch sample, we see now a sgnfcanly lower probably of beng consraned when ncome ncreases for jus below medan households. Also, here are now sronger and sgnfcan negave mpacs of age for boh Holland and he US, wh households n her 40s n he US now beng more lkely o be consraned. Bu he margnal effecs reman consderably lower n he Neherlands han n he US. In erms of labour marke, self-employed are more lkely o be consraned n boh counres. Amercan unemployed heads are less lkely o be consraned, bu unemploymen has no effec n Holland. To nerpre hs, observe ha n he SCF a household can be boh dscouraged and ye apply. For nsance, mgh apply o a place oher han he place where hough would be urned down. So possble ha unemployed n he US were less dscouraged han hose n pad jobs because hey were more lkely o hnk of applyng o sub-prme lenders of varous ypes. Oher demographcs do change n erms of mpac for he US, where we now fnd a sgnfcan negave mpac of beng female and a posve one of beng dvorced or wdowed. Once agan, recall ha n hs defnon we populae he sample wh poenally hose ha have no demand for cred, whch perhaps mxes effecs from he varous equaons ha we delneaed n he earler secon. The defnon has been employed elsewhere, however, and we may shorly conras hese fndngs wh ours. Cox and Jappell (993) use he 983 SCF and Crook (200) he 995 SCF. The same resuls were obaned for wealh, famly sze, gender, and age. 7.4 Household Deb: Amouns Snce a household s cred consraned when s demand for deb exceeds s supply we canno fully nerpre he equaons n he las secon whou havng an

undersandng of nercounry dfferences n he deermnans of he demand for deb. Ths s he am of hs secon. As explaned before, selecon bas may no be much of an ssue for he Neherlands and Ialy, and we can explcly check for he US. So we concenrae on regressng he (log of) he level of oal deb held on regressors, condonal on holdng posve deb for he Neherlands and Ialy and on a sample selecon correced equaon for he US where he selecon of a sample wh posve deb does appear o nduce bas. We use a Tob for Span where a posve deb sample oherwse gves mplausble parameers. In all cases we are neresed n he margnal effecs n he whole populaon, no merely hose wh posve deb. Table 0 gves he resuls. Indeed, across he board sgns and sgnfcance levels of coeffcen esmaes dffer subsanally from hose n exercses conduced wh he oher equaons, suggesng ha dfferen processes for applcaon, rejecon, and deb holdng are a work. TABLE 0 HERE The effec of wealh on demand s srongly negave n he Neherlands and Ialy wh he margnal effecs beng smlar. In he US he sample selecon equaon ndcaes ha wealh has no effec. The same s rue of Span. Ths s conssen wh he rankng of counres we would expec f bankrupcy proecon mpaced on he demand by hgh asse households, as sudes for he Uned Saes sugges hey do (Gropp, Scholz and Whe 997). Increased ncome n he second nle group ncreases demand n all four counres bu afer ha he effec dffers noceably beween he counres. In he Uned Saes demand ncreases as household ncome ncreases whn each ncome nle. Bu n Ialy ncreased ncome has no effec on demand unless he famly s n he hghes nle group. Duch households demand shows plaeau effecs wh ncome. As ncome ncreases whn he second and hrd nle groups demand ncreases, hen says a ha level hroughou he fourh group, ncreases whn he ffh group bu does no ncrease hereafer. In addon he margnal effecs for households n he Uned Saes, Holland and Span are generally larger han he margnal effecs for Ialan famles. An neresng fndng s ha he greaer he amoun by whch ncome s below permanen ncome he greaer he amoun of deb demanded n boh he Neherlands and Uned Saes, bu demand does no change n Ialy or Span. For he Neherlands and he Uned Saes hs s conssen wh he CE verson of he PIH, hough we have consdered deb n aggregae raher han morgage and consumer deb separaely. Combnng hs resul wh our earler resuls we now have a good pcure of he households decsons n four counres. Ialy Span and he Uned Saes are smlar and dffer from he Neherlands. In Ialy and Span, here s no effec on he chance ha a household wll apply for cred he lower s ncome below permanen ncome and here would be no effec eher on he amoun demanded by hose who do apply. Bu n Holland he lower s ncome below permanen ncome he more lkely a household wll apply, he greaer he amoun he household wll ask for. Ineresngly hs has no effec on he chance of beng consraned. For Amercan households a reducon n ncome below permanen ncome wll no affec he chance wll apply for a loan bu wll ncrease he amoun demanded. I wll also reduce he chance s

consraned. Ths s a puzzle ha a presen we are unable o resolve. One mgh expec ha a household wh an ncome much below permanen ncome would have a lower chance of beng offered deb raher han a hgher chance compared o a famly wh hgher ncome relave o permanen ncome. Indeed cred scorng models ypcally nclude ncome as a predcve varable hough s conrbuon s usually relavely small.. The effec of age on demand s conssen wh he CE verson of he PIH for he Neherlands, Span and he Uned Saes, bu slghly less so for Ialy. In he Neherlands demand ncreases unl age 40, and 30sh n he Uned Saes. In Span demand decreases progressvely as he head of he household becomes older han 30 years, n he Neherlands demand decreases progressvely as he head of household becomes older han 50 years whls n he Uned Saes he decrease n demand only sars from age 65. Surprsngly, n Ialy demand decreases as he head ages beween 40 and 65 years whereafer says consan. These fndngs are also conssen wh he precauonary consumpon model (Table 2) for he Neherlands and he Uned Saes. The benchmark case shows mean deb dvded by ncome raos, boh condonal and uncondonal, ncreasng o age 40 and declnng hereafer. The rao plummes afer age 50 bu paerns whch are more conssen wh he daa for he Neherlands and he Uned Saes can be seen f he ncome shocks are reduced or he me preference rae ncreased above he benchmark fgures. The observed consan demand afer age 65 for Ialy s no predced by he precauonary model unless he parameers are se o resul n no deb beng held. The decreased demand afer age 30 s predced f reremen ncome as a proporon of pre-reremen ncome s lowered o 65%, or f ncome growh s consderably ncreased. The effec of educaon also dffers beween he hree counres. Havng earned a hgh school dploma or unversy degree raher han merely leavng afer elemenary school ncreases demand n Ialy. In he Uned Saes havng compleed hgh school acual reduces demand whls oher educaonal levels compleed have no dfferen effec compared wh elemenary school. In he Neherlands havng had a vocaonal ranng or a unversy degree ncreases demand relave o merely leavng afer prmary school. In Span educaon has no effec. More young chldren under he age of 6 years ncrease he amoun of deb demanded n he Neherlands, Span and he Uned Saes bu do no aler demand n Ialy. Havng more pre-eenage kds ncreases demand n Span and he Uned Saes, bu no elsewhere. Ineresngly, havng more eenage kds n he famly n he Uned Saes ncreases demand, bu does no do so n he oher counres. Beng unemployed appears o have no effec on he desred sock of deb, excep for he Neherlands. If deb s provdng nsurance agans unexpeced ncome shocks one would expec hose who are unemployed o desre more deb o smooh consumpon. Bu f a household expecs a spell of unemploymen o be long-erm would no desre more deb. Our resul s conssen wh he laer hypohess bu does no seem o be conssen wh he former. Of course he effec may be on he flow of cred raher han he sock of deb.

Varous oher employmen saes also have no effec on demand: havng an occupaon whch yelds no ncome (no pad job), beng rered (excep n Span), havng anoher job or beng dsabled. In Ialy, Holland and he Uned Saes he self employed demand consderably more deb han ohers, bu no n Span. The absence of an effec n Span s surprsng because has he hghes employmen proecon. The greaer effec of beng self employed n Ialy han n he Uned Saes s slghly puzzlng because bankrupcy proecon appears greaer n he US han n Ialy. Bu may reflec dfferences n he srucure of he deb markes beween he counres wh small busness loans beng less avalable from fnancal nsuons n Ialy han n he Uned Saes. 5 Female heads of households demand less deb n he Neherlands and n he Uned Saes hough for he Uned Saes he effec s only deecable for he populaon as a whole and no for hose who have deb. Gender has no effec n Ialy or Span. Sngle people demand less deb n he Neherlands, Ialy and Span whch s unsurprsng, bu no n he Uned Saes, alhough hose who are dvorced or wdowed demand less only n he Neherlands and Span. Sngle parens demand less n he Neherlands bu no n Ialy, Span or he Uned Saes. Ths may reflec he greaer provson of welfare fundng n he Neherlands han n he oher wo counres. Fnally, some commens on he selecon model dscussed a he end of secon 6 are n order. The deb holdng equaon (7.) s correced for bvarae selecvy from hose ha are unconsraned condonal on havng posve deb. In hs defnon, we nclude he dscouraged ones wh he consraned ones and esmae he selecon process on he full sample. We denfy he effec nonparamercally by mposng excluson resrcons. We nclude n he consraned equaon, bu exclude from he posve deb equaon, wheher he household had been wo or more monhs behnd wh cred paymens n he las sx monhs (Defaul), wheher he head or spouse was currenly socal secury benef paymens (Welfare), number of years he head has worked for he same employer (Years a job) and number of fnancal nsuons he famly has accouns or loans wh (No of accouns). These varables are he ype ha appear n cred scorng models and are less lkely o affec wheher a household desres deb han wheher he household s lkely o be rejeced by a lender. Equaon 7.3 was denfed by ncludng audes owards he use of cred for he purchase of ceran ems (fur coas, cars, vacaons, educaon and lvng expenses when ncome s cu), whch would no be observed by fnancal nsuons n he posve deb equaon, bu excludng hem from he consraned equaon. The demand for deb equaon (7.) s hen denfed by he combned excluson resrcons (and, dfferences n funconal form n he age and ncome regressors). The esmaed parameers of he selecon equaons for he US are gven n Appendx 3. Ths shows ha mos of he denfyng varables are sgnfcan, n some cases very hghly so, wh he expeced sgn. We fnd evdence of selecon bas for he US f we had only sampled hose wh deb. Formally, he selecon correcon erm for havng posve deb s sgnfcan, bu noce ha he one for no beng consraned s no sgnfcan (hs concluson s based on boosrapped sandard errors). Quanavely, n almos all cases excep for wealh, 5 Remember ha he sock of deb for Ialy excludes deb suppled by relaves and frends, unlke he US and NL daa.

we observe only mnor dfferences beween coeffcen esmaes beween he selecon-correced esmaes and he pooled-ols case (fnal column n Table 0). 8. Conclusons In hs paper we have nvesgaed he prevalence of household deb holdng and he ncdence of beng cred consraned usng comparable mcro daa from four OECD counres: he Uned Saes, he Neherlands, Ialy and Span. We measure cred consrans from self-repors on havng been urned down for a cred applcaon, bu can also ake no accoun dscouraged would-be applcans. We documen sark dfferences across hese counres n erms of deb ncdence, deb levels, and he proporon of raoned households (whose demand s no me a he gven neres rae). We generae quanave predcons from a smulaed lfe cycle precauonary savngs model o undersand how parameers of a consumer s problem nfluence demand for cred and severy of bndng consrans. Whls many of hese parameers are no drecly observable, we can ascrbe dfferences n cred marke behavour o dfferences n household characerscs. In summary, we fnd ha a much greaer proporon of US households apply for cred han for he Neherlands or Span wh Ialy far behnd. Ths s due o a combnaon of facors. Whls Amercans have much hgher wealh han households n Ialy, Span or he Neherlands, hs only acs o reduce he chance of applcaon and so s ouweghed by he effec of hgher Amercan ncomes. Income furher below permanen ncome ncreases he chance of applcaon amongs Duch famles whch s conssen wh he cerany equvalence verson of he permanen ncome hypohess. However, conrary o he hypohess, ncome has no effec amongs US, Spansh or Ialan famles. The average age of US heads of households s comparable o ha n Ialy, Span and he Neherlands bu he margnal effecs of age, especally above 50 years, acs o reduce he chance a famly apples. Beng unemployed reduces he chance of applcaon, n he US and n Holland, suggesng unemploymen s eher no expeced o be emporary here or ha cred s no beng used o smooh consumpon. Sngle household heads also have a lower chance of applyng. Of hose households who do apply a much hgher proporon are rejeced n he US han n eher he Neherlands or Ialy and especally Span. Includng hose households ha are dscouraged from applyng suggess ha a consderably smaller percenage of Ialan, Spansh and Duch households are cred consraned han of Amercan famles. In fac, he proporon of Duch, Spansh and Ialan households who acually declare hemselves o be consraned s ny n comparson wh he percenage for he US. Agan, wealh acs o reduce he chance of beng consraned n all four counres wh a relavely large margnal effec n he US. Age reduces he chance of beng consraned wh each year havng a greaer effec on he chance of beng consraned n he US han n Ialy or he Neherlands. Bu age has no effec n Span. Beng rered reduces he chance a household s consraned n he US, whereas n boh he US and Neherlands havng a dsably ncreases he chance. Beng unemployed ncreases he chance of beng urned down or dscouraged from applyng n Ialy and he Uned Saes.

Fnally, average deb holdngs are en mes hgher n he US han n Ialy, fve mes hgher han n Span wh he Neherlands around hree quarers ha of he US. More wealhy households demand less deb n Ialy and he Neherlands, bu wealh has no effec n Span or n he US, apar from whn he group ha possesses deb. We are unable o explan why ncome furher below permanen ncome ncreases he demand for deb bu reduces he chance ha a household s consraned. Demand follows he CE and precauonary savngs versons of he PIH wh respec o age and whls he effec of oal ncome s monooncally posve n he US here are plaeau effecs n Ialy, Span and he Neherlands. Havng eenage kds ncreases demand n he US, bu surprsngly has no effec n Ialy, Span or he Neherlands. Apar from he selfemployed demandng more deb n he US and Ialy, labour marke varables have no dscernable effec. Many of he unexplaned observed ner-counry dfferences are however lkely due o nsuonal dfferences beween he four counres. Employmen proecon s greaer n Ialy, Span and he Neherlands han n he US, and ncome uncerany s hghes n he US han n he Neherlands or Ialy. So we would expec less wllngness o borrow, because of greaer repaymen uncerany, n he US han n Ialy, Span and he Neherlands. In he US here s more proecon n he even of bankrupcy han n he Neherlands or Ialy suggesng greaer supply and also greaer demand by wealher households n he former han n he laer counres. Collaeral lqudaon coss are much hgher n Ialy han n he oher counres and here s a lower degree of nformaon sharng va cred bureaus n Ialy, suggesng greaer nformaon asymmery beween lenders and borrowers. Homeownershp raes are hghes n Span and Ialy followed by he US and fnally he Neherlands wh house prces ncreasng rapdly n he Neherlands, Span and he US, bu less rapdly n Ialy. Morgage demand should herefore be greaer n Ialy, Span and he Neherlands han n he US. On he oher hand, down paymen raos are hgher n Ialy han n he Neherlands, Span and he US so reducng morgage demand n Ialy, and hs s exasperaed by he hgher prepaymen penales n Ialy han n he Neherlands and he US. Morgage paymens are fully ax deducble n he Neherlands, bu only up o a lm n he US and especally n Ialy, reducng ne neres raes n he Neherlands compared wh he US and Ialy respecvely.

References Azcorbe, Ana M., Arhur B. Kennckell, and Kevn B. Moore (2003): Recen Changes n U.S. Famly Fnances: Evdence from he 998 and 200 Survey of Consumer Fnances, Federal Reserve Bullen, January 2003, -32. Alesse, Rob, Sefan Hochguerel and Arhur van Soes (2002): Household Porfolos n he Neherlands, chaper 9 n Guso, Halassos and Jappell (eds.) (2002). Alesse, Rob, Sefan Hochguerel and Guglelmo Weber (2005): Consumer Cred: Evdence from Ialan Mcro Daa, Journal of he European Economc Assocaon, 3, 44-78. Allen, Frankln, Mchael K. F. Chu, and Angela Maddalon (2004): Fnancal Sysems n Europe, he USA, and ASIA, Oxford Revew of Economc Polcy, 20, 490-508. Bacchea, Phlppe and Sefan Gerlach (997): Consumpon and Cred Consrans: Inernaonal Evdence, Journal of Moneary Economcs, 40, 207-238. Banks, James, Rchard Blundell and James P. Smh (2003): Undersandng he Dfferences n Household Fnancal Wealh beween he Uned Saes and Grea Bran, Journal of Human Resources, 38, 24-279. Baxer, W F (995): Secon 85 of he Naonal Bank Ac and consumer welfare, Uah Law Revew. Berkowz, Jeremy, and Rchard Hynes (999): Bankrupcy Exempons and he Marke for Morgage Loans, Journal of Law and Economcs, 42, 908-830. Berau, Carol, and Marha Sarr-McCluer (2002): Household Porfolos n he Uned Saes, n Guso, Halassos and Jappell (eds.) (2002). Berola, Guseppe, Rchard Dsney, and Charles Gran, eds. (2006 forhcomng): The Economcs of Consumer Cred. Cambrdge MA: MIT Press. Berola, Guseppe, and Rchard Rogerson (997): Insuons and Labor Reallocaon, European Economc Revew, 4, 47-7. Banco, Magda, Tullo Jappell, and Marco Pagano (2005): Cours and Banks: Effecs of Judcal Enforcemen on Cred Markes, Journal of Money, Bankng, and Fnance, (forhcomng). Börsch-Supan, Axel and Anna Mara Lusard (2003): Savng: A Cross-Naonal Perspecve, n A. Börsch-Supan (ed.), Lfe-Cycle Savngs and Publc Polcy: A Cross-Naonal Sudy n Sx Counres, Academc Press, -3. Bover, Olympa (2004): The Spansh Survey of Household Fnances (EFF): Descrpon and Mehods of he 2002 Wave, Documenos Ocasonales No. 0409, Banco de Espana, Madrd. Brandoln, Andrea, and Lug Cannar (994): Mehodologcal Appendx: The Bank of Ialy s Survey of Household Income and Wealh, n A. Ando, L. Guso, and I. Vsco (eds.) Savng and he Accumulaon of Wealh: Essays on Ialan Household and Governmen Behavour. Cambrdge: Cambrdge Unversy Press.

Canner, Glenn B. and James T. Fergus (987): The effecs on consumers and credors of proposed celngs on cred card neres raes, Saff Sudes Paper 54, Wshngon DC: Board of Governors of he Federal Reserve Sysem. Carroll, Chrsoper D. (997): Buffer-sock Savng and he Lfe-cylce/Permanen Income Hypohess, Quarerly Journal of Economcs, 2, -55. Chur, Mara-Concea and Tullo Jappell (2003): Fnancal Marke Imperfecon and Home Ownershp: A Comparave Sudy, European Economc Revew, 47, 857-875. Cox, Donald and Tullo Jappell (993): The Effec of Borrowng Consrans on Consumer Lables, Journal of Money, Cred and Bankng, 25, 97-23. Crook, Jonahan N., Lyn C. Thomas and Rober Hamlon (992): The degradaon of he scorecard over he busness cycle, IMA Journal of Mahemacs Appled n Busness and Indusry, 4(), -23.. Crook, Jonahan N. (996) Cred consrans and US households, Appled Fnancal Economcs, 6, 477-485. Crook, Jonahan (200): The demand for household deb n he USA: evdence from he 995 Survey of Consumer Fnance, Appled Fnancal Economcs,, 83-9. Crook, Jonahan (2006a): The demand and supply of household deb: a cross counry Comparson, Chaper 3 n Berola, Dsney, and Gran, (eds.) (2006). Crook, Jonahan (2005): The Measuremen of Household Lables: Concepual Issues and Pracce. Cred Research Cenre, Unversy of Ednburgh, Workng Paper 0/05. Das, Marcel, and Bas Donkers (999): How Ceran Are Duch Households Abou Fuure Income: An Emprcal Analyss? Revew of Income and Wealh, 45, 325-338. Deaon, Angus (99): Savng and Lqudy Consrans, Economerca, 59, 22-248. Deaon, Angus (992): Undersandng Consumpon Oxford: Oxford Unversy Press. Djankov, Smeon, Rafael La Pora, Florenco Lopez-de-Slanes, and Andre Shlefer (2003), Cours, Quarerly Journal of Economcs, 8, 453-57. Duca, John V. and Suar S. Rosenhal (993): Borrowng Consrans, Household Deb and Racal Dscrmnaon n he Loan Marke, Journal of Fnancal Inermedaon, 3, 77-03. Engen, Erc M., and Wllam G. Gale (996): Tax-Preferred Asses and Deb, and he Tax Reform Ac of 986: Some Implcaons for Fundamenal Tax Reform, Naonal Tax Journal, 49, 33-339. European Commson (2004). The Socal Suaon of he European Unon, 2004. Brussels. Fabbr, Danele and Maro Padula (2004): Does poor legal enforcemen make households cred consraned? Journal of Bankng and Fnance, 28(0), 2369-2397.

Ferr, G. and Smon, P. (2002): Consraned consumer lendng: mehods usng he Survey of Consumer Fnances, Unversy of Bar, workng paper. Glaeser, Edward L. and Jose A. Schenkman (998): Neher a Borrower nor a Lender Be: An Economc Analyss of Ineres Resrcons and Usury Laws, Journal of Law and Economcs, 4, -36. Gropp, Ren, and John Karl Scholz, and Mchelle J. Whe (997): Personal Bankrupcy and Cred Supply and Demand, Quarerly Journal of Economcs, 2, 27-25. Guso, Lug, Tullo Jappell and Davd Terlzzese (994): Why s Ialy s savng rae so hgh? n Alber Ando, Lug Guso and Ignazo Vsco (eds) Savngs and he Accumulaon of Wealh. Essays on Ialan Households and Governmen Savng Behavour. Cambrdge: Cambrdge Unversy Press. Guso, Lug, Tullo Jappell, and Lug Psaferr (2002): An Emprcal Analyss of Earnngs and Employmen Rsk, Journal of Busness and Economc Sascs, 20, 24-253. Guso, Lug, Mchael Halassos, and Tullo Jappell (eds.) (2002): Household Porfolos. Cambrdge, MA: MIT Press. Guso, Lug, and Tullo Jappell (2002): Household Porfolos n Ialy, Chaper 7 n Guso, Halassos and Jappell (eds.) (2002). Hayash, Fumo (987): Tess for lqudy consrans: a crcal survey and some new observaons, n Bewley, T.F. (ed), Advances n Economercs: Ffh World Congress, vol. II, 9-20. Hurd, Mchael, and Are Kapeyn (2003): Healh, Wealh, and he Role of Insuons, Journal of Human Resources, 38, 386-45. Jappell, T. (990): Who s cred consraned n he US economy, Quarerly Journal of Economcs, 05, 29-234. Jappell, Tullo, and Marco Pagano (989): Aggregae Consumpon and Capal Marke Imperfecons: An Inernaonal Comparson, Amercan Economc Revew, 79, 088-05. Jappell, Tullo, and Marco Pagano (2002): Informaon Sharng, Lendng, and Defauls: Cross-counry Evdence, Journal of Bankng and Fnance, 26, 207-2045. Jappell, Tullo, and Lug Psaferr (2004): Incenves To Borrow And The Demand For Morgage Deb: An Analyss Of Tax Reforms, CEPR Dscusson Paper 2903.. Kapeyn, Are and Consanjn Pans (2003): The Sze and Composon of Wealh Holdngs n he Uned Saes, Ialy, and he Neherlands, NBER Workng Paper, #082. Kapeyn, Are, Rob Alesse, and Annamara Lusard (2005): Explanng he Wealh Holdngs of Dfferen Cohors: Producvy Growh and Socal Secury, European Economc Revew, 49, 36-39. Kng, Mervn, and Lous Dcks-Mreaux (982): Asse Holdngs and he Lfe- Cycle, Economc Journal, 92, 247-267.

La Cava, Gann and John Smon (2003) A ale of wo surveys: household deb and fnancal consrans n Ausrala, Research Dscusson Paper, Reserve Bank of Ausrala. Ln, Emly Y., and Mchelle J. Whe (200): Bankrupcy and he Marke for Morgage and Home Improvemen Loans, Journal of Urban Economcs, 50, 38-62. Low, Smon, Mahew Sebag-Monefore, and Achm Dübel (2003): Sudy on he Fnancal Inegraon of European Morgage Markes, European Morgage Foundaon and Mercer Olver Wyman. Lyons, Angela C (2003): How Cred Access Has Changed Over Tme For US Households, Journal of Consumer Affars, 37(2), 23-255. Magr, Slva (2002): Ialan Household Deb: Deermnans of Demand and Supply, Banca d Iala, Tem d dscussone del Servzo Sud, no. 454. Mak, Dean M. (200): Household Deb and he Tax Reform Ac of 986, Amercan Economc Revew, 9, 305-39. Marger, Randall P. (987) A lfe-cycle consumpon model wh lqudy consrans: heory wh emprcal resuls. Economerca, 55, 533-557. OECD (999): Classfyng Educaon Programmes. Manual for ISCED-97 Implemenaon n OECD Counres. Pars: Organzaon for Economc Cooperaon and Developmen. OECD (2000): House prces and economc acvy Economc Oulook, No 68, December, 69-84, Pars. Organzaon for Economc Cooperaon and Developmen. OECD (2004): Housng Markes, Wealh and he Busness Cycle, Economc Oulook, No. 75, June, 5 28, Pars. Organzaon for Economc Cooperaon and Developmen. Sglz, Joseph E., and Andrew A. Wess (98): Cred Raonng n Markes wh Imperfec Informaon, Amercan Economc Revew, 7, 393-40. Tunal, I. (986) A General Srucure For Models Of Double-Selecon And An Applcaon To A Jon Mgraon/Earnngs Process Wh Remgraon, Research n Labor Economcs, 8(b), 235-282. Vllegas, Danel J. (989): The Impac of Usury Celngs on Consumer Cred, Souhern Economc Journal, 56, 26-4. Welan, Gary (2000) : Inersae Bankng, Branchng, Organsaon Sze, and Marke Rvalry, Economc and Polcy Analyss Workng Paper 2000-7, Washngon DC: Offce of he Comproller of he Currency.. Whe, Mchelle J. (2006): Bankrupcy and Consumer Behavor: Theory and US Evdence, Chaper 7 n Berola, Dsney, and Gran, (eds.) (2006). Zeldes, Sephen P. (989): Consumpon and Lqudy Consrans: An Emprcal Invesgaon, Journal of Polcal Economy, 97, 305-346.

Daa Appendx Age (for all counres) The nerpreaon of he coeffcens n each equaon of he form y = β x + β age + ε where q denoes splne q, s: k k q q β f age< 30 dy β 2 f 30 age< 40 = β 3 f 40 age< 50 dage β 4 f 50 age< 650 β 5 f 65 age Educaon Educaon varables sandardsed on OECD (999). The classfcaon refers o educaonal sages compleed, raher han merely beng underaken. Varable Descrpon ISCED97 Classfcaon Edu Oher, no specfed, don know, refused Edu2 None or prmary 0, Edu3 Lower secondary and equvalen 2 A, B, C Edu4 Upper secondary (hgh school ec) 3 A, B, C Edu5 Vocaonal ec above upper secondary 4 A, B, C Edu6 College, Polyechnc, Unversy and above 5 A, B, 6

Appendx 2 Deals of he Parameer Esmaon for he Demand Funcon for he US The mehod for esmaon s a wo sage procedure orgnally proposed by Heckman (976) and follows Tunal (986) who specfcally derves he lkelhood funcon n he case of wo selecon equaons wh paral observably. The model consss of hree equaons: A2.3 selecon equaon cred consran A2.2 posve deb selecon equaon A2. he demand for deb 3 3 3 * * d z c z l x d ε γ ε γ ε β + = + = + = We observe he amoun of deb demanded only when when = = c l. We assume ha ε, ε 2, and ε 3 are dsrbued rvarae normal wh zero mean and covarance marx: 3 3 3 3,,,,,, 2 ε ε ε ε ε ε ε ε σ σ σ σ σ σ σ The condonal expecaon of equaon (A2.) condonal on selecon s: d x z z E x c l z z x d E 3 3 ), ( ),,,, ( 3 3 3 3 ε ε ε ε ε ε ε ε λ σ λ σ β γ ε γ ε ε β + + = > > + = A2.4 where ) ;, ( ) )]/( ( ) ( )[ ( 3 3 2 / 2 3 3 ρ γ γ ρ γ ρ γ γ φ λ ε ε z z G z z z Φ = A2.5 ) ;, ( ) )]/( ( ) ( )[ ( 3 3 2 / 2 3 3 3 3 3 ρ γ γ ρ γ ρ γ γ φ λ ε ε z z G z z z Φ = A2.6 where φ s he sandard unvarae normal densy, Φ s he sandard unvarae cumulave dsrbuon, G s he sandard bvarae normal cumulave dsrbuon and ρ s he bvarae correlaon coeffcen beween ε and ε 3. Equaons A2. and A2.2 form a bvarae prob wh selecon model, he lkelhood funcon for whch s: )),, ( ( ln )),, ( ( ln )) ( ( ln 3 3 0, 3 3, 0 ρ γ γ ρ γ γ γ c l c l l z z G z z G z LL = = = = = + + Φ = A2.7

Maxmsaon of A2.7 gves conssen esmaes of γ, γ 3, and ρ. These can be nsered no A2.5 and A2.6 o gve λ ε ε and λ ε ε. These lambda values can hen be 3 nsered no he A2.4 o derve he regresson equaon for A2.: = β + σ λ + σ λ A2.8 d d x ε ε ε ε ε ε 3 ε ε 3 whch can be conssenly esmaed usng OLS. The usual esmaes of he sandard errors wll be nconssen. We esmae he sandard errors by boosrappng he esmaes 000 mes. Tha s, samples of sze equal o he enre sample, were randomly seleced wh replacemen. For each such replcaon he parameers of equaon A2.8 were esmaed and he sandard devaon of hese esmaes for each parameer compued. Ths sandard devaon s aken o be he sandard error of he orgnal esmae of he parameer.

Appendx 3 Bvarae Prob (wh Selecon) Selecon Equaon Model for US Demand Equaon Desres Posve Deb Is No Cred Consraned coeff z sa coeff z sa wealh -0.033-0.34** 0.09 6.06** ncome 0.048 2.8** 0.033.62 ncome 2 0.772 9.** 0.33 3.23** ncome 3 0.84.49 0.544 4.53** ncome 4 0.72.49 0.396 3.37** ncome 5-0.08-2.00* 0.207 2.90** ncome 6-0.27-4.64** -0.058 -.23 nc-perm nc -0.002 -.38-0.009-4.68** age 0.05.66 0.0.23 age 2-0.00 0.0 0.06 2.69** age 3-0.0 -.86 0.006 0.99 age 4-0.028-7.57** -0.002-0.38 age 5-0.039 -.99** 0.003 0.33 ed na ed2 ed3-0.264-2.95** 0.00 0.0 ed4-0.48 -.99* -0.88-2.00* ed5-0.22 -.57-0.222-2.30* ed6-0.085 -.08-0.082-0.82 no kds 6yrs 0.033.34-0.024 -.02 no kds 7-2 0.02 0.84-0.058-2.49* no kds 3-9 0.22 4.8** -0.046 -.9 no kds 20+ 0.87 5.83** 0.027 0.76 unemployed -0.54-8.34** -0.00-0.0 no pad job -0.443-6.2** 0.205.94 rered -0.326-7.35** 0.2 2.36* dsabled -0.375-6.3** -0.40 -.72 oherjob -0.24 -.73-0.09-0. selfemployed 0.028 0.80-0.00-2.58** years a job 0.009 4.54** female 0.063.50 0.2 2.50* sngle -0.380-8.0** -0.20-2.6* dvorced/wd -0.04-2.42** -0.206-4.08** sngle paren -0.20-2.96** -0.290-3.66** a vacaon 0.5 4.07** a expenses 0.07 0.66 a luxures 0.066.2 a cars 0.406 3.7** a educaon 0.06.89 whe 0.7 3.56** 0.324 9.64** defaul -0.765-4.30** no of accouns -0.02-2.44* welfare 0.0 0.20 dyr95-0.003-0.08 0.064.66 dyr98-0.008-0.23 0.033 0.86 dyr0-0.037 -.08 0.064.65 Consan -0.20-0.42-0.80-2.58** Nobs 6260 Rho 0.568 (3.97)** Ref scfmerge\ob\24q.log Noes: The LR es of Rho s dsrbued Ch squared (). Number of uncensored observaons (cases wh deb 0 ) s 228. Money values n 992 Euros. * denoes sgnfcance a 5%, ** denoes sgnfcance a %. Income, wealh and (ncome permanen ncome) are ln(x+) f x 0, -ln(-x+) f x < 0.

Fgure Sylzed Cerany Equvalen Models wh non-zero Borrowng Consran

Table Precauonary Model, Benchmark Parameers Parameer Value Descrpon s 25 age of sar of economc lfe R 65 reremen age T 85 ermnal perod γ 2 relave rsk averson δ 0.02 me preference rae R.02 reurn on asses G.02 ncome growh α 0.75 replacemen rae Y p 0 20 nal value permanen ncome A 0 0 nal asse level B 0 borrowng consran, f mposed σ η 0.0 permanen shock σ 0.0 ransory shock N 000 number of sample pahs

Table 2 Precauonary Model: Smulaon Resuls Benchmark (Table ) age 30 40 50 60 70 holds any deb % 8. 73.4 23.3 0.2 0.0 consraned % 7.6 2.5 0.0 0.0 0.0 avg. deb/avg. ncome 0.97 0.235 0.04 0.000 0.000 ndv. deb/ncome mean 0.207 0.267 0.058 0.00 0.000 (uncondonal) medan 0.83 0.200 0.000 0.000 0.000 sddv 0.83 0.28 0.52 0.04 0.000 deb/ncome mean 0.256 0.364 0.247 0.32 0.000 (f deb > 0) medan 0.233 0.32 0.85 0.32 0.000 sddv 0.70 0.269 0.230 0.08 0.000 Benchmark, bu α = 0.65 Benchmark, bu G =.05 age 30 40 50 60 70 30 40 50 60 70 holds any deb % 65.5 37.2.6 0.0 0.0.5.0 0.0 0.0 0.0 consraned % 3.6 0. 0.0 0.0 0.0 3.9 0.0 0.0 0.0 0.0 avg. deb/avg. ncome 0.25 0.072 0.00 0.000 0.000 0.0 0.00 0.000 0.000 0.000 ndv. deb/ncome mean 0.33 0.085 0.002 0.000 0.000 0.02 0.00 0.000 0.000 0.000 (uncondonal) medan 0.086 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 sddv 0.53 0.66 0.09 0.000 0.000 0.046 0.07 0.000 0.000 0.000 deb/ncome mean 0.202 0.228 0.06 0.000 0.000 0.0 0.36 0.000 0.000 0.000 (f deb > 0) medan 0.79 0.78 0.062 0.000 0.000 0.070 0.08 0.000 0.000 0.000 sddv 0.46 0.204 0.09 0.000 0.000 0.096 0.0 0.000 0.000 0.000

Benchmark, bu σ η = σ = 0.075 Benchmark, bu γ = 3 age 30 40 50 60 70 30 40 50 60 70 holds any deb % 00.0 00.0 00.0 77.5 4.5 2.6.0 0.0 0.0 0.0 consraned % 55.6 29.0 0.6 0.0 0.0 3.9 0.0 0.0 0.0 0.0 avg. deb/avg. ncome 0.85.656.399 0.258 0.005 0.0 0.00 0.000 0.000 0.000 nd. deb/ncome mean 0.874.752.543 0.37 0.04 0.02 0.00 0.000 0.000 0.000 (uncondonal) medan 0.863.70.444 0.265 0.000 0.000 0.000 0.000 0.000 0.000 sddv 0.202 0.434 0.525 0.399 0.086 0.046 0.07 0.000 0.000 0.000 deb/ncome mean 0.874.752.543 0.479 0.309 0.097 0.43 0.000 0.000 0.000 (f deb > 0) medan 0.863.70.444 0.372 0.229 0.069 0.3 0.000 0.000 0.000 sddv 0.202 0.434 0.525 0.392 0.275 0.095 0.02 0.000 0.000 0.000 Benchmark, bu δ = 0.03 Benchmark, bu R =.03 age 30 40 50 60 70 30 40 50 60 70 holds any deb % 99.9 00.0 00.0 64.6 2.7.8.0 0.0 0.0 0.0 consraned % 32.6 3.8 0.5 0.0 0.0 3.9 0.0 0.0 0.0 0.0 avg. deb/avg. ncome 0.645.237.07 0.77 0.04 0.0 0.00 0.000 0.000 0.000 nd. deb/ncome mean 0.677.365.204 0.305 0.042 0.02 0.00 0.000 0.000 0.000 (uncondonal) medan 0.658.293.095 0.39 0.000 0.000 0.000 0.000 0.000 0.000 sddv 0.248 0.492 0.589 0.423 0.69 0.047 0.07 0.000 0.000 0.000 deb/ncome mean 0.677.365.204 0.473 0.330 0.02 0.30 0.000 0.000 0.000 (f deb > 0) medan 0.659.293.095 0.335 0.206 0.072 0.04 0.000 0.000 0.000 sddv 0.247 0.492 0.589 0.446 0.360 0.097 0.0 0.000 0.000 0.000 Noe: All rows excep consraned based on model whou lqudy consrans mposed. Consraned : calculaed from model wh lqudy consrans mposed. Consraned means: cash on hand lower han 0% of consumpon.

Table 3 Household Deb n OECD Counres Counry Lables Resdenal Morgage Deb (percen of dsposable (percen of GDP) (2) ncome) () 995 2005 992 2002 Denmark 2.9 55.2 63.9 74.3 Neherlands 63.4 34. 40.0 78.8 Porugal 49.8 2.6 2.8 49.8 US 78.8. 45.3 58.0 Span 47.4 93.5.9 32.3 Germany 74.3 83.2 38.7 54.0 Sweden 54.7 78.3 37.5 40.4 France 47.8 65.2 2.0 22.8 Fnland 47.2 58.6 37.2 3.8 Belgum 45.7 54.2 9.9 27.9 Greece 8.6 44.9 4.0 3.9 Ialy 24.6 43. 6.3.4 Japan na na 25.3 36.8 Ireland na na 20.5 36.5 Luxembourg na na 23.9 7.5 () Calculaed from OECD Fnancal Accouns Table IIIb Balance Shees and from OECD Naonal Accouns, Table 3. Dsposable ncome s ne naonal dsposable ncome. Households nclude non-prof nsuons servng households. (2) OECD June 2004/2 No 76 December.

Table 4a Incdence of Household Deb Holdngs by Type of Deb (Percenage of Households ha Possess each ype) Morgage Deb Oher deb Toal Neherlands Ialy Span US Neherlands Ialy Span US Neherlands Ialy Span US 99.0 4. 23.0 992 4.7 64.7 73.5 993 40.7 2.5 46. 5.0 64.9 25. 994 39.3 43.6 64. 995 4.2 3.4 43.4 43.0 4. 66.2 64.5 24.6 74.7 996 42.8 44. 66.4 997 43.4 43.8 66.4 998 43. 9. 45.3 43. 6.4 63.7 66.6 22.9 74.3 999 42.7 42.6 67.3 2000 43.7 9.2 44.3 6.5 67.3 23. 200 42.7 46.6 40.0 64.2 65.3 75.5 2002 43.7 0.2 26.7 43.0 3.9 24.4 67.9 2.4 43.6 2003 4.4 42.2 66.7 2004 42.9.9 49.3 37.8 5.0 65.8 66.3 23.5 76.7 2005 43. 3. 6.4 2006 4.8 29.6 59.7 Ialy (SHIW): Fgures for morgages are deb ousandng o purchase or resrucurng of buldngs only and so may underesmae he oal deb ousandng on morgages. Fgures for oher deb and oal exclude deb owed o relaves and frends. US (SCF): Fgures for morgages nclude morgages, home equy loans and home equy lnes of cred on he prncpal resdence, loans on oher resdenal propery and deb on non-resdenal real esae. Neherlands (DHS): Fgures for morgages nclude all ypes of deb on resdenal and non-resdenal real esae. Span (EFF): Fgures for morgages nclude morgages and oher ypes of loans o buy he household s man resdence and morgages and oher loans o buy oher real esae. All values use samplng weghs.

Table 4b Mean Household Deb Holdngs by Type of Deb (992 Euros) Morgage Deb Oher deb Toal Neherlands Ialy Span US Neherlands Ialy Span US Neherlands Ialy Span US 99 749 436 385 992 35374 682 4294 993 30247 275 4040 72 34292 3897 994 27232 3467 30708 995 28973 2246 3554 358 649 7648 32558 3895 436 996 3020 3675 33886 997 30803 3646 34457 998 27759 658 4276 2892 299 0347 30659 4576 5623 999 29908 3244 3366 2000 34772 220 3554 2377 37847 4587 200 33389 45243 40 9545 37342 54788 2002 3732 2559 8259 3403 2005 204 40722 4564 0300 2003 3472 442 39077 2004 3602 3732 63040 486 2305 250 4030 6037 74290 2005 36873 369 4004 2006 36609 2362 38693 See noes o Table 4a.

Table 4c Medan Household Deb Holdngs by Type of Deb (992 Euros) Condonal on Holdng Deb Morgage Deb Oher deb Toal Neherlands Ialy Span US Neherlands Ialy Span US Neherlands Ialy Span US 99 0863 4888 5974 992 5354 5398 2262 993 60353 373 3363 324 36302 6428 994 58084 3096 33945 995 5838 302 56546 322 364 698 3675 687 244 996 58686 2876 3809 997 57896 295 3729 998 50577 2545 64052 2733 482 7778 32370 6272 33958 999 55537 374 35703 2000 63268 6039 29 400 37456 646 200 60529 7082 3488 7860 375 36962 2002 6547 8438 24459 284 4425 4289 3620 7375 60 2003 68668 2627 35568 2004 689 24368 85098 2768 424 924 3557 8778 4929 2005 7685 2688 47043 2006 75039 2943 47083 See noes o Table 4a.

Table 5 Consraned Households Percenage who Apply () Percenage who are rejeced Percenage who are rejeced Percenage who are rejeced ()(3) or dscouraged ()(3) condonal on applcaon (2) Neherlands Ialy Span US Neherlands Ialy Span US Neherlands Ialy Span US Neherlands Ialy Span US 99 0.9 3.3 992 22.5 27.8 993 22.4 0.8. 2.4 3.0 4.2 995 9.8 5.6 63.6 0.9 0.9 20.4 2.9 2.3 28.6 4.5 6.2 32.0 998 2.2 6.0 63.6 0.8 0.5 2.8 3. 2.8 28.4 3.9 7.7 34.2 2000 25.7 5.4.7 0.4 2.8.7 4.3 8.0 200 26. 64.9.5 9.9 2.3 26.9 3.7 30.7 2002 24.9 4.2 20.8 2.5 0.5. 3.5 2.2 3.4 9..7 5. 2004 20.9 4.7 68.7.7 0.6 20.9 2.9 2.7 27.8 4.5.9 30.5 2006 23.8 2.7 3.7 9.4 All values are weghed proporons () denomnaor s all households. (2) denomnaor s all households ha appled. (3) hose who were rejeced or who ganed only par of he amoun hey appled for. Those who were no rejeced, or who dd no gan only par of he amoun hey appled for, may no have appled for cred. Tme perods covered: Neherlands and Span: any me n he wo years precedng he survey, Ialy: any me durng he year precedng survey year, US: any me durng he fve years precedng he survey year. In he US and n he Neherlands s possble for a household o have appled for cred and o have been dscouraged; n Ialy he quesonnare does no allow for hs: a household may only be dscouraged f dd no apply.

Table 6a Demographcs Condonal On Deb Holdng (Mean values or Percenages) Neherlands Ialy Span 993 998 2003 99 995 2000 2004 2002 Age 44.0 48.82 47.24 46.0 46.06 44.9 45.06 45.0 Famly sze 2.64 2.6 2.39 3.48 3.44 3.22 3.08 3.37 Pad job (%) 68.9 59.9 63.4 59.6 50.2 55.4 63. 57.2 Unemployed (%) 2.8 2.7 3.6 3.7 3.3 0.76 0.53 7.2 Rered (%).2 9.0 6.2 3.8 2.7 2.3.9 8.7 No pad job (%) 5.2 3.3 4. 0.03 3.0 0.57 0.3 0.9 Dsabled (%) 3.2 5.9 8..9 3.7.4.4 2.3 Oher job (%) 3.2 4.3.0 0.8 0 0.04 0 0.26 Self employed (%) 5.3 5. 3.8 24. 27.0 29.5 22.8 3.4 Sngle (%) 2.5 6.6 9.0 5.5 4.9 3.8 4.9 9.9 Dvorced (%) 9.4.3.2 8.4 9.5 9.4.5 6.0 Marred (%) 78. 72. 69.3 86. 85.6 76.8 73.6 84. Female (%) 8.7 5.8 24.5 0.6 5.0 8.4 8.5 28.2 Number of kds 0.824 0.838 0.685.48.45.28.9.35 Educaon (%).7.8.2 na na Educaon2 (%) 7. 4.5 4.3 26.9 24.4 5. 2.5 27.0 Educaon3 (%) 23.0 9.8 22.4 33.9 34.2 33.7 30.6 6.0 Educaon4 (%) 7.5 3.2 3.0 30.9 32.9 40.2 45.4 4.9 Educaon 5 (%) 9.7 2.3 7.4 na 23.4 Educaon 6 (%) 4. 39.4 4.7 8.2 8.5.0.6 8.7 Toal ncome 277 2347 22042 24700 23506 25565 24990 20798 Ne Worh 02438 06502 0548 52237 66728 7525 82639 77594

Table 6a (cond) Demographcs Condonal On Deb Holdng (Mean values or Percenages) US 992 995 998 200 2004 Age 44.92 44.86 45.07 45.67 46.90 Famly sze 2.72 2.66 2.7 2.67 2.62 Pad job (%) 63.2 67.2 68.4 68.9 66.7 Unemployed (%) 5.5 3.5 2.9 2.0 2.7 Rered (%) 0.8 0.3 0.3 0.2.7 No pad job (%) 3. 2.5.7.8.4 Dsabled (%) 4.6 3.5 3.5 4. 4.6 Oher job (%) 0..9 0.47 0.23 0.46 Self employed (%) 2.4. 2.7 2.9 2.5 Sngle (%) 6.4 7.0 6.5 5.4 6.7 Dvorced (%) 20.0 9.2 8. 8.7 20.7 Marred (%) 64.0 63.8 65.4 65.9 62.8 Female (%) 23.3 24.4 22.3 22.5 24.7 Number of kds 0.82 0.79 0.82 0.79 0.76 Educaon na Educaon2 (%) 3.4 2.2 2.5 2.7.9 Educaon3 (%) 3.8 3.6 2.3 2.8 2.2 Educaon4 (%) 37.4 39.8 40.5 39.2 36.6 Educaon 5 (%) 9.6 20.4 6.7 7.9 9. Educaon 6 (%) 35.9 34.0 38.0 37.4 40.2 Toal Income 5335 53496 6097 70689 66590 Ne worh 22370 22279 288453 3523 364889

Table 6b Demographcs All Cases (Mean values or Percenages) Neherlands Ialy Span 993 998 2003 99 995 2000 2004 2002 Age 46.2 49.23 48.32 52.44 54.03 53.7 53.80 52.53 Famly sze 2.44 2.42 2.29 3.06 2.89 2.7 2.58 2.94 Pad job (%) 58.8 57.2 60.9 48.4 36. 44. 46.4 4.9 Unemployed (%) 3.2 2.9 2.6.0 3.9.5.7 6. Rered (%) 8. 2.5 7.9 30.4 32. 29.7 30.5 23.0 No pad job (%) 7.2 5. 5.6 0.23 3.4.7.7 5.5 Dsabled (%) 4.3 5.2 7.9 6.9 0.3 8.5 7.0 3.0 Oher job (%) 4. 5..8 0.25 0.0 0.09 0 0.35 Self employed (%) 4.7 4.4 3.8 2.7 4. 4.4 3.2 0.2 Sngle (%) 6.9 20.5 22.2 6.8 8.4 6.4 7.4 4.2 Dvorced (%) 3.5 5. 2.7 7.5 20.7 9.9 23.2 4.6 Marred (%) 69.6 64.4 65. 75.7 70.8 63.7 59.4 7.2 Female (%) 23.4 20.2 26.0 9.0 27.9 28.2 30.2 33.9 Number of kds 0.709 0.722 0.63.7.05 0.96 0.82.04 Educaon 2.2 2.8.2 na na Educaon2 (%) 9.5 4.9 5.3 43.6 43.0 33.4 30.3 4. Educaon3 (%) 28.5 23.4 23.6 25.8 26.9 27.6 28.8 5. Educaon4 (%) 6.0 3.2 2.6 23.4 23.7 29.8 3.7.2 Educaon 5 (%) 9.8 8.8 7.9 na 7.6 Educaon 6 (%) 34.0 36.8 39.5 7.2 6.4 9. 9. 5. Toal ncome () 2322 2434 20924 2097 9354 20260 20706 6934 Ne Worh 88602 9337 0030 833 26769 40208 54246 68543 () Toal ncome relaes o he followng years: NL: prevous year; Ialy: year as ndcaed, US and Span: prevous year. All moneary values n 992 Euros. NL: ncome s oal ne household ncome, Ialy: ncome s ne dsposable ncome, US and Span: gross ncome. For educaon caegores, refer o Daa Appendx. Samplng weghs used.

Table 6b (cond) Demographcs All Cases (Mean values or Percenages) US 992 995 998 200 2004 Age 48.43 48.45 48.73 48.97 49.56 Famly sze 2.50 2.49 2.50 2.49 2.46 Pad job (%) 54.0 57. 58.5 59.95 59.26 Unemployed (%) 5.6 4. 3.4 2.6 2.9 Rered (%) 8. 7.9 8.9 7.9 8.0 No pad job (%) 5.4 3.5 2.6 2.5 2. Dsabled (%) 5.7 4.3 5.0 5.0 5.6 Oher job (%) 0.08 3.0 0.40 0.27 0.55 Self employed (%) 0.6 0...8.6 Sngle (%) 8.0 7.8 8.6 7.2 8.0 Dvorced (%) 24.5 23.6 22.8 22.2 24.2 Marred (%) 57.5 58.5 58.6 60.5 57.8 Female (%) 27.8 28.8 27.9 26.7 28. Number of kds 0.70 0.69 0.69 0.69 0.67 Educaon na Educaon2 (%) 4.3 3.2 3.4 3.3 3.3 Educaon3 (%) 6.0 5.7 3.7 4.3 3.5 Educaon4 (%) 38.8 4.0 4.9 40.0 37.7 Educaon 5 9. 9.3 7.7 8.3 9.0 Educaon 6 (%) 3.7 30.8 33.3 34.2 36.5 Toal Income 47409 4899 549 64842 6695 Ne worh 2740 23450 284250 37996 385383

Table 7 The Cred Applcaon and Granng Decsons Desred Wans Dscour Apples Rejeced Observed Apples o Holdng/ non-zero aged Holdng/ Sock Flow Flow Flow d>0 yes no yes no d>0 yes yes d>0 yes no yes yes 0 yes yes d>0 yes yes no na 0 yes yes 0 no na no na 0 yes yes d<0 yes na na na 0 yes no d<0 yes na na na d<0 no yes

Table 8 Probably of Applyng for a Loan Margnal Effecs Neherlands Ialy US Span Random Effecs Random Effecs Pooled 2002 wealh -0.006** -0.0030** -0.0025* -0.072** ncome 0.038 0.0033 0.022** 0.034 ncome 2 0.253* 0.054** 0.3083** 0.089* ncome 3 0.28-0.03 0.0855 0.0904 ncome 4 0.220 0.0209 0.0475 0.095 ncome 5 0.27 0.0234-0.075** 0.0262 ncome 6 0.0545* 0.0080-0.0343** 0.0293 nc-perm nc -0.002** 0.000 0.0006-0.006 age < 30 0.0078-0.0006-0.0056-0.0026 30 = age < 40-0.0072** 0.0002-0.0044-0.0076** 40 = age < 50-0.0068** -0.000* -0.0072** 0.0002 50 = age <65-0.0084** -0.008** -0.022** -0.0038** 65 = age -0.0076** -0.0023** -0.094** -0.000** ed -0.0255 na na na ed3 0.0025 0.0008-0.0408-0.0008 ed4 0.0238-0.0003 0.0328-0.0098 ed5 0.085 na 0.0620* 0.002 ed6 0.0032-0.002 0.0627* -0.026 no kds <= 6yrs -0.0057 0.0036-0.0080 0.0086 no kds 7-2 0.003 0.0066** -0.0066 0.092 no kds 3-9 -0.007 0.0067** 0.03 0.044 no kds 20+ 0.0069 0.0062** 0.0088 0.0235** unemployed -0.0486* 0.0003-0.724** 0.0446* no pad job -0.068** -0.007-0.285** 0.0246 rered -0.0080 0.0082-0.0686** -0.0060 dsabled -0.0344-0.0072-0.393** -0.0060 oherjob -0.0374-0.0255-0.0465 0.560 selfemployed 0.0040 0.0035 0.0085 0.002 female -0.020 0.002-0.0278-0.030* sngle -0.009** -0.005-0.0784** -0.0379** dvorced/wd -0.06 0.0043 0.027-0.072 sngle paren 0.0294-0.0085-0.0899** 0.0562* Nobs 8,92 20,230 2540 5087 Rho 0.427 087.73 0.89 60.25 Pseudo R 2 0.80 2929 0.36 592 + 2 2 Rho = σ u ( σ u ) random effecs varance as fracon of oal error varance; es sasc s ch-squared. Noes for Neherlands and Ialy: Regonal dummes ncluded, bu no repored. Noes for Uned Saes: Sample s for years 995, 998 & 200. Noes for Ialy: Sample s all households for whch observaons exsed n a leas wo adjacen surveys (995 & 998 or 2000 & 998 or 2000 & 2002 or 2002 & 2004). Noes for all counres: nercep and me effecs ncluded bu no repored. Excluded caegores: educaon: level 2 ( level no avalable for Ialy, US or Span and level 5 also no avalable for Ialy); maral saus: marred; occupaonal saus: pad job. Income: lnear splne; all money values n 992 Euros. Income, wealh and (ncome permanen ncome) are ln(x+) f x 0, -ln(-x+) f x < 0. * denoes sgnfcance a 5%, ** denoes sgnfcance a %.

Table 9a Cred Consran Equaons Models (Probs) Rejeced or ganed only par of amoun appled for, condonal on applcaon Margnal Effecs Neherlands Ialy US Random Effecs Random Effecs Pooled wealh -0.0008** -9.33*0-6 -0.009** ncome 0.0055-0.0230 0.0087 ncome 2-0.0062-0.407** -0.0656 ncome 3-0.0492-0.024-0.435** ncome 4-0.048-0.278-0.22** ncome 5 0.02-0.0007-0.086** ncome 6-0.0283-0.5-0.0089 nc-perm nc 0.0005 0.0028** 0.0049** age < 30 0.00 0.0040-0.0020 30 = age < 40-0.0007 0.002-0.0098** 40 = age < 50 0.00 0.004-0.0005 50 = age <65-0.003* 0.000-0.0003 65 = age -0.0004 0.0024-0.0069* ed 0.064 na na ed3-0.0022 0.038 0.0792 ed4 0.0060-0.0035 0.679** ed5 0.0020-0.0037 0.796** ed6-0.0038 0.364** no kds <= 6yrs 0.0035 0.039 0.029 no kds 7-2 -0.0030 0.0269** 0.0336** no kds 3-9 -0.0004 0.0088 0.044** no kds 20+ 0.0037 0.05-0.07 unemployed 0.027 0.0847-0.0242 no pad job 0.0457** 0.0247-0.06** rered 0.002-0.0082-0.082** dsabled 0.0798** -0.0047 0.0864* oherjob 0.0335* 0.000 selfemployed 0.036 0.0039 0.0239 female 0.003-0.008-0.0384* sngle -0.0007 0.546** 0.0036 dvorced/wd 0.005 0.038 0.0344 sngle paren -0.0057-0.0244 0.0674* Nobs 457 089 809 Rho 0.276 35.63 0.228.35 Pseudo R2 0.32 268 Noe for Ialy: Sample s all household-years for whch observaons were avalable n a leas 2 adjacen years (995 & 998 or 998 & 2000 or 2000 & 2002 or 2002 & 2004) and he household appled for cred n ha quesonnare year. Snce very few households ndcaed hey appled n wo successve quesonnares, he mean number of year observaons per household s only.2. Noe for US: Sample s for households from surveys n 995, 998 & 200 ha appled for cred. Noes for all counres: nercep and me effecs ncluded bu no repored. Excluded caegores: educaon: level 2 ( level no avalable for Ialy, US or Span and level 5 also no avalable for Ialy); maral saus: marred; occupaonal saus: pad job. Income: lnear splne; all money values n 992 Euros. Income, wealh and (ncome permanen ncome) are ln(x+) f x 0, -ln(-x+) f x < 0. * denoes sgnfcance a 5%, ** denoes sgnfcance a %.

Table 9b Cred Consran Equaons Models (Probs) Rejeced Or Ganed Only Par Of Amoun Appled For Condonal On Applcaon, Or Dscouraged Condonal On No Applyng Margnal Effecs Neherlands Ialy US Span Random Effecs Random Effecs Pooled 2002 wealh -0.0004** -0.00** -0.0080** -0.0033** ncome 0.0007 0.00 0.0044-0.0067 ncome 2-0.0093* -0.0028 0.0006-0.009 ncome 3-0.075-0.029-0.** 0.008 ncome 4 0.0006-0.0096-0.405** -0.00 ncome 5 0.0082 0.0056-0.0663** -0.064 ncome 6-0.0057-0.0079-0.028-0.0070 nc-perm nc 0.0002** 0.0003** 0.0033** -0.0004 age < 30 0.0003-0.0002-0.0022-0.005 30 = age < 40-0.0004* 0.0003-0.0078** 0.000 40 = age < 50 0.0002-0.0006* -0.006 0.0000 50 = age < 65-0.0004** -0.0002-0.0036** -0.0002 65 = age -0.0003-0.0008** -0.06** -0.0003 ed -0.000 na na na ed3-0.006 0.0048 0.074** -0.025** ed4-0.0007-0.0034 0.077** -0.024** ed5-0.0008 na 0.0992** -0.0038 ed6-0.004* -0.000 0.0567* -0.040** no kds <= 6yrs 0.0004 0.0027 0.0056 0.0030 no kds 7-2 -0.0002 0.0036** 0.0252** 0.006 no kds 3-9 -0.000 0.0022 0.0342** -0.005 no kds 20+ 0.000 0.0028** 0.00 0.003 unemployed 0.0040 0.060** -0.0255 0.028* no pad job 0.006 0.0020-0.086** -0.0036 rered 0.009 0.0029-0.0658** -0.006 dsabled 0.027** -0.0042 0.05-0.0039 oherjob 0.0069* -0.009-0.0034-0.0035 selfemployed 0.0085** 0.007 0.082-0.0004 female 0.006-0.004-0.078 0.0002 sngle -0.0026** 0.0032-0.00-0.003 dvorced/wd -0.000 0.0036 0.0267* 0.0075 sngle paren 0.0027-0.0039 0.0605** 0.0065 Nobs 8,896 20,230 2,540 5,087 Rho 0.286 29.0 0.9 20.20 Pseudo R2 0.70 2242 0.36 58 Noe for Ialy: Sample s all household-years for whch observaons were avalable n a leas 2 adjacen years (995 & 998 or 998 & 2000 or 2000 & 2002 or 2002 & 2004). Noe for US: Sample s for households from surveys n 995, 998 & 200. Noes for all counres: nercep and me effecs ncluded bu no repored. Excluded caegores: educaon: level 2 ( level no avalable for Ialy, US or Span and level 5 also no avalable for Ialy); maral saus: marred; occupaonal saus: pad job. Income: lnear splne; all money values n 992 Euros. Income, wealh and (ncome permanen ncome) are ln(x+) f x 0, -ln(-x+) f x < 0. * denoes sgnfcance a 5%, ** denoes sgnfcance a %.

Table 9c Cred Consran Equaons Models (Probs) Rejeced Or Ganed Only Par Of Amoun Appled For, Or Dscouraged Margnal Effecs Neherlands US Random Effecs Pooled wealh -0.0006** -0.0097** ncome 0.006-0.0007 ncome 2-0.0083 0.058 ncome 3-0.0244* -0.623** ncome 4 0.0080-0.27** ncome 5 0.0067-0.0698** ncome 6-0.0098* 0.0003 nc-perm nc 0.0002* 0.0034** age < 30 0.0002-0.003 30 = age < 40-0.0004-0.0077** 40 = age < 50 0.0002-0.0036** 50 = age <65-0.0006** -0.0054** 65 = age -0.0005-0.006** ed -0.0028 na ed3-0.005-0.0259 ed4 0.0006 0.0523* ed5-0.0007 0.0677** ed6-0.0047* 0.0328 no kds <= 6yrs 0.0005 0.0040 no kds 7-2 -0.000 0.0203** no kds 3-9 0.0003 0.033** no kds 20+ 0.0005 0.035 unemployed 0.0042-0.0368* no pad job 0.004-0.0996** rered 0.0028-0.072** dsabled 0.075** 0.03 oherjob 0.0095* -0.0060 selfemployed 0.0093** 0.0325** female 0.0024-0.0296** sngle -0.0042** -0.064 dvorced/wd -0.0023 0.044** sngle paren 0.0084* 0.088** Nobs 9,378 6,260 Rho 0. 296 79.24 Pseudo R2 0.76 359 Noe for US: Sample s for households from surveys n 992, 995, 998 & 200. Noes for all counres: nercep and me effecs ncluded bu no repored. Excluded caegores: educaon: level 2 ( level no avalable for Ialy, US or Span and level 5 also no avalable for Ialy); maral saus: marred; occupaonal saus: pad job. Income: lnear splne; all money values n 992 Euros. Income, wealh and (ncome permanen ncome) are ln(x+) f x 0, -ln(-x+) f x < 0. * denoes sgnfcance a 5%, ** denoes sgnfcance a %.

Table 0 Deb Ousandng Neherlands Ialy US Span RE Regresson RE Regresson Pooled OLS 2 Sage Seln. Tob COEFF z-value COEFF z-value COEFF z-value COEFF z-value COEFF z-value wealh -0.029 -.7** -0.033-4.59** -0.009-2.90** 0.00.70-0.27 -.29 ncome -0.030-0.6-0.3-2.08* -0.082-3.23** -0.075 -.0 0.276 0.28 ncome 2 0.883 4.99** 0.78 2.64**.966 8.09** 2.00 2.75** 5.746 2.99** ncome 3.684 6.29** 0.36.22.394 0.03**.448 8.72** 4.227.85 ncome 4 0.392.50 0.329.8.248 0.7**.234 9.78** 0.874 0.39 ncome 5 0.555 3.08** 0.30.38 0.976 5.56** 0.963 3.64** 2.396.53 ncome 6 0.294 3.78** 0.646 6.06** 0.57 5.07** 0.59 0.36** -0.48-0.24 nc-perm nc -0.00-4.67** 0.00 0.2-0.023 -.3** -0.02-8.48** 0.032 0.96 age < 30 0.80 8.8** -0.0-0.45 0.050 4.57** 0.039 2.55* 0.25.05 30 <= age < 40 0.024 2.92** 0.04.52 0.006 0.82 0.009. -0.206-2.07* 40 <= age < 50-0.002-0.35-0.023-2.95** -0.007 -.3-0.04-2.3* -0.95-2.45* 50 <= age < 65-0.039-6.48** -0.07-2.37* -0.009 -.85-0.009 -.55-0.324-5.96** 65 <= age -0.023-2.78** -0.0 -.3-0.055-8.69** -0.067-5.87** -0.46-7.37** ed 0.266.53 na na na na ed3 0.226 2.5* 0.063.07-0.547-3.88** -0.57-2.72** -0.048-0.09 ed4 0.53 4.4** 0.326 5.8** -0.94 -.75-0.27 -.42 0.350 0.58 ed5 0.42 3.67** na -0.206 -.8-0.220 -.39 0.77 0.32 ed6 0.682 6.20** 0.408 4.53** -0.056-0.49-0.068-0.44-0.456-0.77 no kds <= 6yrs 0.04 3.33** -0.02-0.48 0.050.88 0.062 2.2*.654 3.98** no kds 7-2 0.039.28 0.026 0.67 0.043.65 0.059 2.38* 0.978 2.42* no kds 3-9 0.028.00-0.039 -.6 0.067 2.67** 0.058 2.26* -0.46-0.45 no kds 20+ -0.05 -.42 0.027 0.9 0.06.67 0.048.4 0.89 3.62** unemployed -0.229-2.90** -0.058-0.38-0.077-0.82-0.4-0.87 0.99 0.25 no pad job 0.094 -.07-0.40-0.97-0.034-0.30 0.62.0 -.28 -.73 rered -0.048-0.79 0.04.39-0.095 -.38-0.40 -.46-2.45-3.23** dsabled -0.279-3.60** -0.020-0.5 0.02 0.3 0.008 0.07-2.037 -.89 oherjob -0.236-2.97** 0.448.02 0.096 0.46 0.63 0.78 2.072 0.8 selfemployed 0.29 3.38** 0.658 3.6** 0.420 0.55** 0.384 8.88** -0.345-0.69

female -0.32-5.35** -0.043-0.73-0.086 -.5-0.45-2.08* -0.472-0.99 sngle -0.852-2.78** -0.354-4.6** -0.8 -.90-0.23 -.50-3.628-6.2** dvorced/wd -0.395-5.43** -0.8 -.28 0.063.0 0.07.03 -.754-2.4* sngle paren -0.529-4.86** -0.057-0.53-0.8 -.82-0.244 -.58.574.88 lambda 0.25.3 lambda 2 0.436 2.95** Nobs 408 6876 228 9668 5087 Rho 0.763 0.388 R2 0.224 0.38 0.4724 0.4603 0.092 Noes for Ialy: Sam ple s all household-years for whch observaons were avalable n a leas 2 adjacen years (993 & 995 or 995 & 998 or 998 & 2000 or 2000 & 2002 or 2002 & 2004) and ha have deb > 0. Noes for US: Equaons also nclude he varable whe whch s no avalable for he Neherlands or Ialy. Sample s for all households n 992, 995, 998 & 200 surveys. Pooled esmaes use sample where deb > 0. 2 sage selecon esmaes esmaed usng households ha have deb > 0 and ha are no cred consraned (wh selecon equaons). Noes for Span: Sample consss of all households wh deb 0. All households wh deb=0 are regarded as censored.