Household Debt Repayment Behaviour: What Role Do Institutions Play?

36 Pages Posted: 19 May 2008 Last revised: 23 May 2008

See all articles by Burcu Duygan-Bump

Burcu Duygan-Bump

Board of Governors of the Federal Reserve System

Charles Grant

University of Reading

Date Written: March 16, 2008


Household debt repayment behavior has been understudied, especially empirically, despite the heightened debate on rising household debt, personal bankruptcy filings, and arrears. In this paper, we use data from the European Community Household Panel to analyze the determinants of household debt arrears. The paper's primary aim is to understand the role of institutions in household arrears by exploiting cross-country differences and the panel nature of the data set. We start our analysis by showing that falling into arrears has important long-term consequences for employment, self-employment, home-ownership, and health. Next, we show how arrears themselves are the result of adverse events that affect a household, such as bad health or unemployment. Finally, we show that there are important cross-country differences in how households react to these adverse events. These differences can be partly explained by local financial and judicial institutions. Indicators covering contract enforcement and the degree of credit information sharing are used to capture the costs associated with default. In particular, we show that while adverse shocks are highly important, the extent to which they affect household debt repayment depends crucially on the penalty for defaulting.

Keywords: Households Borrowing, Arrears, Institutions

JEL Classification: D12, D14, G2

Suggested Citation

Duygan-Bump, Burcu and Grant, Charles, Household Debt Repayment Behaviour: What Role Do Institutions Play? (March 16, 2008). FRB of Boston Quantitative Analysis Unit Working Paper No. 08-3, Available at SSRN: or

Burcu Duygan-Bump (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
2029124663 (Phone)

Charles Grant

University of Reading ( email )

Reading, Berkshire RG6 6AH
United Kingdom

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