Welfare generosity, credit access and household debt: clarifying relationships through a new welfare-debt typology

ABSTRACT

This paper contributes to the political economy literature exploring the intersection of the welfare state and financialisation by addressing two important questions that have emerged from recent findings. First, why have both low generosity and high generosity environments been linked to higher levels of household debt? Second, how might this be explained by the variation in the role of debt across these very different contexts? To answer these questions, I develop a typology of Welfare State – Credit Contexts, which emerges from the interaction of two dimensions: welfare generosity and credit access. I test the implications of this model using welfare generosity and household liabilities data for a sample of OECD countries, spanning from the late 1990s to 2010. Using fixed effects models, I find that welfare generosity is negatively related to non-mortgage debt, with evidence that this relationship is conditional on credit access. In contrast, I find mortgage debt is consistently linked to levels of credit accessibility but fail to establish its relationship to welfare generosity. These results demonstrate the need for greater specificity when discussing the relationship between welfare generosity and household debt and for greater attention to the causes and consequences of different types of household debt.

KEYWORDS:

• Welfare state
• financialisation
• household debt
• OECD countries
• credit markets

Acknowledgements

I would like to thank my advisor, R. Daniel Kelemen, for his generous feedback on the many iterations of this work. I also would like to thank the reviewers at New Political Economy for their helpful comments.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

The data used in this paper is all publicly available and can be found through the citations under references.

Notes

1 The sample for non-mortgage debt includes Australia, Denmark, France, Germany, Italy, Netherlands, Spain, Switzerland and the United States. The sample for housing debt consists of Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom and the United States.

2 I find that taking out the country fixed effects provides results that are in line with the previous findings and display the precise hypothesised relationship (see Figure II in the Appendix). Using Johnston et al.’s (2020) controls and any of my own that were not included, I ran a mixed model with country random effects and time fixed effects. I found that an interaction was significant, but highly counterintuitive (see Figure III in the Appendix). In addition, the unconditional relationships between both generosity and housing debt and between the credit encouragement index and housing debt were insignificant.

Additional information

Notes on contributors

Kathleen M. Annarelli

Kathleen Michael Annarelli is a Doctoral Candidate at Rutgers, the State University of New Jersey. Kathleen’s research interests include the welfare state, financialisation, credit markets, economic and social inequality, and political behavior. Kathleen currently is working on her dissertation project in which she studies the relationship between credit markets and the welfare state in Continental Europe.