Debt relief; Financial inclusion; Overdue debts; Poverty trap; Accounting; Economics, Econometrics and Finance (miscellaneous); Strategy and Management
Abstract :
[en] We examine the impact of overdue debts in small villages in one of Hungary’s most dis-advantaged regions. We find that a significant number of debtors with overdue debts permanently escape from debt collectors. Accordingly, in our sample, overdue debts reduce the likelihood of declared work by 14 percentage points on average. The lack of declared work alone reduces the probability of opening a bank account by 21 percentage points, and overdue debts further reduce it by 9 percentage points. The negative effect of overdue debts on health is almost as large as the pos-itive effect of a high school diploma. In addition, the health-destroying effect extends not only to the debtor but to all members of the household. Therefore, overdue debts create a poverty trap mecha-nism exacerbating financial exclusion, hence resulting in significant losses for both the individual and society. We recommend paying more attention to smoothing credit cycles and resolving non-performing debt obligations.
Disciplines :
Finance
Author, co-author :
BERLINGER, Edina ; University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Department of Finance (DF) ; Department of Finance, Corvinus University of Budapest, Budapest, Hungary
Dobránszky-Bartus, Katalin; Department of Finance, Corvinus University of Budapest, Budapest, Hungary
Molnár, György; Centre for Economic and Regional Studies, Institute of Economics, Budapest, Hungary
Funding: This research was supported by the Higher Education Institutional Excellence Program 2020 of the Ministry of Innovation and Technology in the framework of the ‘Financial and Public Services’ research project (TKP2020-IKA-02) at Corvinus University of Budapest.
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