Thesis title:	Heterogeneity in households’ borrowing and saving  decisions – causes, consequences and policy  implications
PhD Programme:	Economics and Business Administration
Supervisor:	Merike Kukk, Associate Professor
Offered by:	School of Business and Governance, Department of Economics and Finance

Description
Household wealth holdings and balance sheet components have experienced big swings in the last two decades, not only because of booms and busts in house and stock prices but also the ownership of different asset types has been changing (Crawford et al 2016, Wolff 2017). As wealth is affecting household economic decisions such as consumption and labour supply, but also more general outcome such as well-being and happiness, it is important to understand the borrowing and saving decisions and the economic consequences of the choices.

Although economists know more about the triggers of households’ behavior now than they did before the 2008-2009 recession, there are still a number of unanswered questions, mainly related to the mechanisms how household financial situation affects their economic choices and the heterogeneity across different socio-economic groups, including gender and generational differences. The asset side of the household balance sheet is much more investigated than the liabilities side which have gained more importance after the rapid rise in credit since the 2000s. Andersen et al. (2016), Dynan (2012) and Kukk (2016, 2019) shed some light on different mechanisms how household debt affects economic behavior using micro data but the list is not finite, more research is needed to investigate links between behavioral biases, borrowing and saving. A new strand of literature points out the heterogeneity among hand-to-mouth households, e.g. financial deepening has created wealthy hands-to-mouth households whose economic choices are different from households with liquid wealth (Cloyne et al. 2019, Kaplan et al. 2014).

The aim of the PhD thesis is to find new insights to explain financial decisions of households and the economic consequences. The insights provide valuable policy suggestions to avoid or alleviate unsustainable financial choices in the era of upsurge in financial innovation. For research, micro datasets (Household Finance and Consumption Survey, ad hoc other household surveys and transactional data) and advanced econometric methods will be used to explore both economic and behavioral factors when explaining borrowing and saving decisions. As PhD thesis will contain at least three articles, the PhD student will investigate several aspects of the proposed topic, while exact research question for each paper will be formulated based on the ongoing research and results.
The doctoral topic is related to the European Commission Horizon2020 project “Income, wealth and gender: study and practical web tool for understanding gender pay and pension gaps in Estonia - the country with biggest gender pay gap in EU” (InWeGe), where TalTech is the project partner.

The requirements for the PhD candidate:

• MA degree in finance or economics with strong conceptual knowledge about household behaviour
• Advanced skills in quantitative methods with the experience in applied research using micro data
• Programming skills are not prerequisite but beneficial as data processing and econometric models are expected to be programmed in R and/or in Stata

References

Andersen, A. L., Duus, C., & Jensen, T. L. (2016). Household debt and spending during the financial crisis: Evidence from Danish micro data. European Economic Review, 89, 96-115.

Cloyne, J., Ferreira, C., & Surico, P. (2019). Monetary Policy when Households have Debt: New Evidence on the Transmission Mechanism. The Review of Economic Studies, forthcoming.

Crawford, R., Innes, D., & O'Dea, C. (2016). Household wealth in Great Britain: distribution, composition and changes 2006–12. Fiscal Studies, 37(1), 35-54.

Dynan, K. (2012). Is a household debt overhang holding back spending? Brookings Papers on Economic Activity, Spring 2012, 299-362.

Kaplan, G., Violante, G. L., & Weidner, J. (2014). The wealthy hand-to-mouth. Brookings Papers on Economic Activity, 2014(1), 77-138

Kukk, M. (2016). How did household indebtedness hamper spending during the recession? Evidence from micro data, Journal of Comparative Economics, 44(3), 764-786.

Kukk, M. (2019). Debt repayment problems: short-term and long-term implications for spending, Review of Economics of the Household.10.1007/s11150-018-9424-2 [forthcoming].

Wolff, E. N. (2017). Household Wealth Trends in the United States, 1962 to 2016: Has Middle Class Wealth Recovered? (No. w24085). National Bureau of Economic Research.