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Empirical Economics (2020) 58:1953–1978
I feel wealthy: A major determinant of Portuguese
Received: 6 June 2017 / Accepted: 18 October 2018 / Published online: 24 November 2018
© Springer-Verlag GmbH Germany, part of Springer Nature 2018
This paper examines the response of household debt to households’ perception of house
prices using data from the ﬁrst wave of the Household Finance and Consumption Sur-
vey. Whereas the literature has hitherto emphasized the effects of housing wealth on
consumption, this study concentrates on the effects on debt accumulation—distin-
guishing mortgage debt from non-mortgage debt and inspecting over-indebtedness.
Different measures of housing wealth are considered, controlling for tenure years.
The ﬁndings reveal that the effects of housing wealth differ by type of loans and with
the measure of housing wealth. Over-indebtedness is driven by the same factors that
determine mortgage debt, suggesting a strong association between having outstand-
ing liabilities from the primary residence and the risk of entering into default. Further
estimations by different income and wealth classes revealed dissimilar housing wealth
effects, with non-mortgage debt tending to rise among lower-income households and
over-indebtedness tending to be larger among the wealthier.
Keywords Household ﬁnance ·Housing wealth effects ·Debt ·Portugal
JEL Classiﬁcation C25 ·D14 ·R29
Until the 2007–2008 global economic crisis, advanced economies went through a
period of increased liquidity and historically low interest rates in which household debt
accumulated faster than the GDP growth rate. Alongside that, while house prices kept
rising steadily to reach alarming levels in several countries, new mortgage contracts
1Department of Economics, ISCTE-IUL, Av. Forças Armadas, 1649-026 Lisbon, Portugal