Broke, ill, and obese: The causal effect of household debts on health

Matthias Keese, Hendrik Schmitz
Ruhr Graduate School in Economics, Germany

Household overindebtedness and debt-related financial distress have become a common phenomenon in many countries. Most likely, the recent credit crunch will push this trend forward. A precarious financial situation coincides frequently with health problems. However, the causal effect of household debts on health is widely unexplored. We analyze the effect of household indebtedness on health using data from the German Socio-Economic Panel from 2002-2008. To establish a causal effect, we rely on fixed-effects methods and a subsample of constantly employed individuals to rule out problems of reversed causality. We find severe indebtedness to be strongly correlated with bad self-rated health, mental health and overweight. Moreover, debts also causally deteriorate physical and mental health. However, we find no causal effect on being overweight.

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