The Effects of Over-Indebtedness on Individual Health

Abstract

This paper uses data from the 2002-2005-2008 waves of the Spanish Survey of Household Finances (EFF) to investigate whether debts burdens hamper people's health. Several measures of debt strain are constructed, including debt-to-income ratios, the existence of debt arrears and amounts of outstanding debts. The paper also differentiates between mortgage and non-mortgage debts and explores the role of social norm effects in the debt-health relationship. The results, based on a random effects model extended to include a Mundlak term, show that non-mortgage debt payments and debt arrears affect significantly people's health. Furthermore, mild social norm effects are detected, according to which being less indebted than the reference group results, ceteris paribus, in better health.

Keywords: over-indebtedness, self-assessed health, random effects model, social norm effects

JEL Classification: G01, I13, I22