Household Balance Sheets and Debt – an International Country Study - Part 2

We analyse the determinants of developments in the households' balance sheets for wealth and debt and household savings, as well as the consequences for society of high gross debt for the households. The analysis shows that the low level of savings in Denmark relative to non-Nordic OECD countries can be explained by high corporate savings, a larger public sector, a better government budget balance and a higher level of tax deductibility of interest expenses. The backdrop to Danish households' substantial financial balance sheets, with high gross debt and considerable financial assets, is that the well-established mortgage-credit and pension systems facilitate balance-sheet consolidation. The strong increase in the gross debt of Danish households is, to a large extent, offset by substantial growth in their pension wealth. On the face of it, high gross debt entails more pronounced household sensitivity to interest-rate changes and shocks to the economy. The results indicate greater fluctuations in private consumption in countries with a high level of household gross debt. Arrears are at a very low level for Danish households, and we find no statistical relation across countries between the level of gross debt and household arrears. This indicates that the high gross debt of Danish households is offset by assets to such an extent that the financial sector has not suffered major losses on direct lending to the households.

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