The effect of household debt on aggregate demand: The case of Spain

Arbeitspapier

Households in some European countries increased their indebtedness massively over the past 20 years. Besides household debt, also government debt and corporate debt are in some countries at levels not seen before. While there is a common agreement that these high debt levels are not sustainable there is fewer consensus about the effect of changes in debt and especially debt levels on aggregate demand. Based on a cross country study of 18 European countries we show that there is a strong link between household sector debt and aggregate demand. We strengthen these results by an analysis for Spanish provinces. The level of household debt in the Spanish provinces is highly significant for changes in aggregate demand that translated into increasing unemployment in these regions during the recession following the financial crisis of 2007/08.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 3924

Classification and Topics

• Classification: Wirtschaft ; Macroeconomics: Consumption; Saving; Wealth ; Demand and Supply of Labor: General ; Economywide Country Studies: Europe
• Subject: debt ; leverage ; balance sheet recession ; household sector ; aggregate demand ; unemployment ; Private Verschuldung ; Gesamtwirtschaftliche Nachfrage ; Europa ; Regionale Arbeitslosigkeit ; Spanien

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Jauch, Sebastian ; Watzka, Sebastian
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/64836
• Last update: 10.03.2025, 11:46 AM CET