Consumer Over-Indebtedness and Income Distribution in the EUGianni Betti, University of Siena, Italy

Excess consumer indebtedness has long been associated with low income and poverty. The aim of this article is to investigate the problem of consumer over-indebtedness in the EU member countries and relate an appropriate measure of over-indebtedness to some household characteristics such as income status, age and family structure, using EU-wide household survey data. Our empirical results reveal that debt problems are not a good indicator of poverty. The existence of debt does not directly imply over-indebtedness, and low-income households are not particularly prone to be overburdened with debt problems. In fact, in countries with liberalised credit markets, it is the high-income groups that are more likely to be over-indebted than the low-income groups once they take on consumer debt. A major difference between the over-indebted and the non-over-indebted households is that the former group consumes a markedly smaller proportion of their income, even though the income levels of the two groups are comparable. As a result, over-indebtedness can be a factor, even a major factor, in creating and sustaining poverty. Moreover, limited access to consumer credit, which is more prevalent among some Southern European economies, can also exacerbate the debt problem for all income groups and limit the ability of the low-income young households in particular to use the debt instrument effectively in making their consumption and saving decision. Key words- Debt, credit market, over-indebtedness, household characteristics. JEL classification - D12, D14, E21.