The Effect of Debt Burden on Consumption of Household

Abstract

This paper analyzes whether household debt burden affects household consumption

and if so, whether its impact differed before and after the financial crisis of 2008. These questions are addressed by means of regression analyses that include debt burden as an independent variable, to examine the extent to which debt burden affects consumption. The models replace debt burden with debt-to-income ratio (DTI) or change in debt. To check the robustness of the regressions, alternative regressions with interaction terms, and with log variables are also examined. The results show that debt burden negatively affects household consumption, and such influence was especially pronounced in absolute value immediately after the 2008 financial crisis.