Household debt and debt to income: The role of business ownership

This paper studies private business ownership as a source of heterogeneity of households’ indebtedness. We analyse micro-data on the debt side of household balance sheets in a small economy, with an underdeveloped financial system. We find that households’ behaviour in the credit markets varies substantially between employees and entrepreneurs; and that separately considering formal and informal business ownership is first-order. Our results indicate that the probability of being indebted is higher for employees. We also show that debt to income elasticity differs markedly across types of households, with employees (informal business owners) being the most (least) sensitive to income variations. Finally, we go beyond the mean, and find important differences between average elasticities and those at different quantiles of debt for formal entrepreneurs, while no divergences are detected for employees or informal business owners.