Keeping Up With the Novaks? Income Distribution as a Determinant of Household Debt in CESEE

This paper constitutes an initial attempt to shed light on the role of income distribution for household debt in Central, Eastern, and Southeastern Europe (CESEE). Using household-level data from the OeNB’s Euro Survey for the period 2008–2018, we address the question whether interpersonal comparisons (“Keeping up with the Novaks”) are associated with the probability of having a loan and planning to take out a loan. Applying multilevel probit modeling to consider the hierarchical structure of the data, our results support the notion that higher income inequality is negatively correlated with the probability of having a loan at the bottom of the distribution, and positively at the top. We show this impact for almost all components of household debt, but evidence is strongest for mortgage and foreign currency loans. Loan plans are associated with income inequality at the very top of the income distribution.