Macroeconomic determinants of households' indebtedness in Portugal: What really matters in the era of financialisation?

Abstract

The objective of this paper is to perform a time series econometric analysis in order to empirically assess the macroeconomic determinants and the corresponding drivers of the Portuguese households' indebtedness in the period 1988 to 2016. During that period, the Portuguese economy experienced a process of financialisation that contributed to an increase in Portuguese households' indebtedness to unprecedented levels. The Portuguese households' indebtedness played a crucial role in the recent sovereign debt crisis. Based on the existing literature, we hypothesize that Portuguese households' indebtedness was due to seven macroeconomic determinants, notably housing prices, financial asset prices, the degree of personal income inequality, households' labour income, the importance of welfare state expenditures, the fraction of the working-age population and the level of interest rates. Our findings reveal that financial asset prices, the degree of personal income inequality, households' labour income and the fraction of the working-age population positively impact Portuguese households' indebtedness, whereas the housing prices negatively impact Portuguese households' indebtedness. Our findings also show that the increase in financial asset prices and the decline in housing prices were the main drivers of Portuguese households' indebtedness in the last few decades.

Why are (financialised) workers becoming more resigned and conformist and less claimants? Empirical evidence for Portugal

“…The main feature related to workers' financialisation corresponds to the steep increase in their indebtedness in the last decades to unprecedented and unsustainable levels, particularly up to the Great Recession (Lapavitsas, 2011;Van der Zwan, 2014;Romão and Barradas, 2022;Barradas and Tomás, 2023). Barradas (2022) discusses in detail the reasons behind the growth of workers' indebtedness in the last decades, such as the higher availability of credit supported by financial innovation (e.g., debt securitisation and the 'originate to distribute' strategies of banks), technological progress (e.g., credit scoring models), a lower level of interest rates, increased competition among banks and/or other financial institutions and the corresponding adoption of more aggressive credit policies, and the appearance of new financial instruments (e.g., home equity loans and credit cards) that have implied a deterioration of creditworthiness standards and a reduction of the collateral requirements, even for low-income and low-wealth workers (Cynamon and Fazzari 2008;Stockhammer, 2009;Hein 2012;Bezemer et al, 2023).…”

“…Third, the ARDL estimator also produces reliable estimates in the case of some potential endogenous variables among the independent ones (Pesaran and Smith, 1998;Harris and Sollis, 2003). Fourth, the ARDL estimator allows us to use all variables in levels (i.e., without differentiating the ones that are stationary only in first differences), which makes the interpretation of our coefficients more intuitive (Romão and Barradas, 2022). Our estimates were produced by using the EViews software (version 12).…”

“…Portuguese workers have lower wages and the worst labour conditions in comparison to the wages and conditions observed in the majority of European Union countries, reflecting the strong deregulation and flexibilisation of labour relations in the last four decades (Marques and Fonseca, 2022). Portuguese workers are also the most indebted among the European Union countries (Romão and Barradas, 2022). This suggests that workers' financialisation and their indebtedness levels have played a central role in the decline of strike activity and the related lowering of wages and worsening of labour conditions in Portugal.…”

Why does the nexus between finance and inequality break in times of financialization? Empirical evidence for the European Union countries

“…Inequality has continued to widen all over the world, and has even reached its historical maximum level in some countries in the last few years (Zalewski and Whalen, 2010;Piketty, 2014;Haan and Sturm, 2017;Westcott and Murray, 2017;Bolarinwa et al, 2021). This translates into a great scourge for contemporary societies because of its deleterious effects, which include the following: the spread of destitution, criminality, corruption, injustice, insider privilege, unequal opportunities and social-political unrest (Tan and Law, 2012); hunger, poor health and a fall in life expectancy at birth (Claessens and Perotti, 2007;Bolarinwa et al, 2021); the rise of abstentions in elections, the proliferation of populism, the emergence of more extreme political parties, the recurrence of more defragmented parliaments and the absence of political majorities and, consequently, less political stability; the growth of the informal sector (Claessens and Perotti, 2007); a decrease in entrepreneurial activities and consequent harmful effects on labour productivity and on productive investment (Claessens and Perotti, 2007); weak economic growth and an increase in unemployment, due to higher levels of taxation to implement public policies to mitigate inequality (Seven and Coskun, 2016); the recurrence of episodes of financial and economic crisis due to the greater indebtedness of poorer people as a way to overcome their stagnant wages and maintain their consumption standards (Haan and Sturm, 2017;Romão and Barradas, 2022); and even climate change.…”