Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/222742 
Year of Publication: 
2019
Series/Report no.: 
ADBI Working Paper Series No. 975
Publisher: 
Asian Development Bank Institute (ADBI), Tokyo
Abstract: 
In this paper we develop an analytical framework using the household utility maximization approach to model stability conditions to avoid household debt overhang. Our theoretical framework suggests that household debt stability is a function of five factors, namely the rate of interest, period of lending, income growth, loan-to-income ratio, and households' disutility from borrowing parameter. Further, we apply our analytical model to the case of India and estimate household debt stability conditions for Indian households under various scenarios to estimate the ceiling borrowing ratios borrowing below which households can avoid the risk of running into a debt overhang problem.
Subjects: 
debt overhang
household finance
household borrowing
JEL: 
C13
C15
C62
D10
H31
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper

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