Abstract
This paper uses a panel vector autoregressive model to study the differential effects of components of private debt on income growth for a large panel of countries. While household debt growth in a given period generally has a positive impact on income, this effect is much stronger for countries with relatively lower levels of income and household debt-to-GDP ratios. On the other hand, the responsiveness of income growth to an increase in corporate debt varies across countries, with a consistently negative impact in richer and/or more heavily indebted countries. A simple extension of our framework suggests the roles of investment and consumption spending in explaining the varying effects of household and corporate debt on growth. We carry out several exercises to illustrate the robustness of our results.
Acknowledgments
The views expressed in this paper are those of the authors. The authors wish to thank two anonymous referees as well as the Associate Editor, Evi Pappa, for their extremely useful comments. The authors would also like to thank Irfan Qureshi, Eleonora Granziera, Hyungsik Roger Moon, Thomas Parker, Tao Chen, and Pierre Chausse for helpful discussions related to the topic of this study. All comments and/or questions should be directed to the corresponding author.
List of countries.
| Household debt | Corporate debt | Household debt | Corporate debt | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Above | Below | Above | Below | Above | Below | Above | median | ||
| median | median | median | median | median | median | median | median | ||
| A. Above-median income (N = 25) | |||||||||
| Italy | X | X | X | X | |||||
| Australia | X | X | X | Japan | X | X | |||
| Austria | X | X | X | Luxembourg | X | X | |||
| Belgium | X | X | X | X | Netherlands | X | X | ||
| Canada | X | X | New Zealand | X | X | X | |||
| Cyprus | X | X | Norway | X | X | ||||
| Denmark | X | X | X | Singapore | X | X | X | X | |
| Finland | X | X | X | Spain | X | X | X | X | |
| France | X | X | X | Sweden | X | X | |||
| Germany | X | X | Switzerland | X | X | ||||
| Iceland | X | X | UAE | X | X | X | |||
| Ireland | X | X | UK | X | X | X | |||
| Israel | X | X | X | X | USA | X | X | X | |
| B. Below-median income (N = 47) | |||||||||
| Lesotho | X | X | |||||||
| Afghanistan | X | X | Lithuania | X | X | ||||
| Albania | X | X | Malaysia | X | X | X | |||
| Argentina | X | X | Mauritius | X | X | ||||
| Bangladesh | X | X | Mexico | X | X | ||||
| Brazil | X | X | Morocco | X | X | ||||
| Bulgaria | X | X | X | Myanmar | X | X | |||
| Cameroon | X | X | Nepal | X | X | X | |||
| C. African Republic | X | X | Nicaragua | X | X | ||||
| Chad | X | X | Pakistan | X | X | ||||
| Chile | X | X | X | X | Peru | X | X | ||
| China | X | X | X | Poland | X | X | |||
| Colombia | X | X | Romania | X | X | ||||
| Costa Rica | X | X | Samoa | X | X | ||||
| Croatia | X | X | X | X | Saudi Arabia | X | X | ||
| Czech Republic | X | X | Sierra Leone | X | X | ||||
| El Salvador | X | X | S. Islands | X | X | ||||
| Estonia | X | X | X | X | South Africa | X | X | X | |
| Honduras | X | X | Sri Lanka | X | X | ||||
| Hungary | X | X | X | X | Tajikistan | X | X | ||
| India | X | X | Thailand | X | X | ||||
| Indonesia | X | X | Turkey | X | X | X | |||
| Kazakhstan | X | X | Ukraine | X | X | X | |||
| Latvia | X | X | X | X | Vanuatu | X | X | ||
| C. Both income groups (N = 4) | |||||||||
| Greece | X | X | X | X | Portugal | X | X | X | X |
| Malta | X | X | X | Slovenia | X | X | X | ||
| N = number of countries | 37 | 58 | 38 | 61 | |||||
-
Sources: World Development Indicators (WDI) and IMF databases. Panel C lists countries which are classified as either above- or below-median income countries during a part of the time period considered, and therefore, belong to both income groups over the course of this period.
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Supplementary Material
The online version of this article offers supplementary material (https://doi.org/10.1515/bejm-2022-0004).
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