Alina Bartscher, Danmarks Nationalbank

"Household Debt and Inequality in the United States, 1950-2019"

Abstract

This paper studies the secular increase in U.S. household debt over the past seven decades. We exploit a novel household-level dataset covering the joint distribution of debt, income and wealth. The data show that rising housing debt of middle-class families has played a central role in the debt increase. We further find that income and debt growth comoved closely until the late 1970s, but have diverged strongly thereafter. Since the 1950s, the vast majority of U.S. household debt has always been housing debt. In the postwar era, housing debt mainly increased because more households took on debt. Yet since the 1980s, it has mainly increased because households took on larger amounts of debt. We show that home-equity-based borrowing can account for about half of the housing debt increase over the boom period ending with the 2008 crisis. This has led to pronounced changes in life-cycle debt-to-income profiles, with higher levels of debt at older ages. Yet since asset values grew as well, life-cycle wealth-to-income ratios have remained similar across cohorts. Our data also show that black households, with their lower homeownership rates and housing assets, have only played a very limited role in the extraction boom and overall debt growth since the 1950s.

Contact person: Patrick Moran