Wharton Pension Research Council Working Papers

Document Type

Working Paper

Date of this Version



Higher household debt is associated with lower future GDP growth in a broad set of 80 countries over the period 1950–2016. Several institutional factors, such as flexible exchange rates, capital account openness, higher financial development and inclusion, mitigate this negative relationship. Three mutually reinforcing mechanisms help explain this relationship. First, increases in household debt amplify the probability of future banking crises, which significantly disrupts financial intermediation. Second, crash risk may be systematically neglected due to investors’ overoptimistic expectations associated with household debt booms. Third, debt overhang impairs household consumption when negative shocks hit.


The published version of this working paper may be found in the 2020 publication: Remaking Retirement: Debt in an Aging Economy.


Older adults, household debt, GDP growth

Working Paper Number


Copyright/Permission Statement

All findings, interpretations, and conclusions of this paper represent the views of the author(s) and not those of the Wharton School or the Pension Research Council. © 2019 Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.

Included in

Economics Commons



Date Posted: 25 September 2019