Tax and Policy Drivers of Personal Overindebtedness in the European Union

Résumé du livre

This paper evaluates drivers of personal overindebtedness among the member-states of the European Union (EU). Personal overindebtedness gives rise to poverty, social exclusion, and other serious private and social problems. The EU, however, has neither adopted a common definition of overindebtedness nor assembled consistent statistical data on the phenomenon. This paper explores whether tax policy, indicators of economic freedom, and macroeconomic traits such as the debt-to-GDP ratio can explain private indebtedness in different EU countries. A gantlet of sparsity-inducing regression methods isolates two policies that reduce household debt and two policies that increase it. The level of social contributions and the overall tax burden are associated with lower private debt. The ratio of public debt to GDP and financial freedom elevate private debt. Future research can expand the methodological toolkit to other linear and machine-learning approaches. It should also examine demographic drivers of debt, such as sex and education.