Household leverage is substantially lower in Emerging Europe than in more advanced European countries. The 2010 LITS survey provides comparable data for five advanced European economies: France, Germany, the UK, Sweden, and Italy. In these countries 40% the households which own their home have a mortgage compared to just 6% in Emerging Europe. Also, 53% of households in advanced Europe have a credit card compared to 26% in Emerging Europe.

The limited use of bank credit in Emerging Europe suggests that debt overhang in the household sector should not be a major impediment to overall future economic growth in the region. To assess whether household debt may limit economic activity in selected countries, we need to examine which type of households use bank debt and how debt affects their consumption and investment. Further, we need to look in more detail at whether household debt is more prevalent in countries that were the most severely hit by the crisis.

# <u>The Distribution of Debt across Households</u>

Consumer credit and mortgages in the region seem to be concentrated among those households which are least vulnerable to economic shocks. Table 4.4 examines the distribution of credit cards, mortgages and FX mortgages across household types. We focus on three household characteristics which should capture their resilience to economic shocks: the income level of the household, whether the household depends on wage income or is self employed, and the education level of the household. The table suggests that households with a mortgage or a credit card are substantially more wealthy. For example households with a mortgage have an average income of more than 5,700 USD per year, while households without a mortgage have an average income level of just around 4,000 USD. Households with a credit card or mortgage are also much more likely to have a household member with higher education. We find that selfemployed households are not more likely to be indebted than households with wage income, which confirms that the more risky (self-employed) households are not more exposed to bank debt.

**Table 4.4.  Household Characteristics and Use of Credit**

||Full sample|A<br> <br>yes|ll househ<br>Credit car<br>no|olds (n=23<br>d<br>Sample<br>test|'525)<br>yes|Mortgage<br>no<br>Sample<br>test|Househol<br>yes|ds with mortg<br>FX mortgag<br>no|age (n=1'114)<br>e<br>Sample test|
|---|---|---|---|---|---|---|---|---|---|
|Income (USD)|4,107|5,702|3,559|***|5,744|3,957<br>***|6,219|5,381|**|
|Self employed||||||||||
|(1=yes)|0.13|0.13|0.13||0.14|0.14|0.11|0.17|***|
|University degree||||||||||
|(1=yes)|0.19|0.25|0.16|***|0.30|0.18<br>***|0.34|0.27|**|

Source: LITS survey and authors‟ calculation. Note: The table reports means for each household characteristic by credit status. The credit status variables are as defined in Table 3.3.1. The household characteristics are defined as follows: Urban is 1 if the household is located in an urban area and 0 if it is located in a rural area. Income is the OECD equivalized expenses in USD per year. Self employed is 1 if the household derives its income predominantly from self-employment or farming and 0 otherwise. University degree is one of the respondent has a university degree and 0 otherwise. All means are adjusted for sample weighting in the LITS 2010 survey. The sample tests reports the results of linear independent sample tests which examine whether household characteristics differ for households with and without a specific credit status. ***, **, * denote significance at the 0.01, 0.05 and 0.10-level.

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