The long-term impact of household debts on household consumption

Abstract

Using panel data from 2012 to 2018, this article investigates the long-term impact of household debt on household consumption, which is very important to the sustainable development of economy. The result shows that total household debt has a significant crowding-out impact on long-term household consumption, whereas nonhousing debt has no significant effect on it. In addition, we also find that the debt of high-asset families has a weaker impact on long-term household consumption; the debt of rural families, however, has a greater crowding-out effect, which means that increasing rural families' leverage will have a greater negative impact on household consumption. Finally, household debt's negative effect on long-term consumption was not found in older families, whereas it is found at significant level in middle-aged families. The above results have important implications for China's policy to stimulate consumption and promote sustainable economic development.