The financial lives of families. How credit regimes and welfare states shape household indebtedness

Debt has become an essential part of many families’ daily lives. Yet we know little about the cross-national dimension of credit markets as a substitute for welfare states. I argue that the interaction of welfare states and credit regimes constrains the ways in which households cope with financial shortfalls, thereby producing and reproducing patterns of indebtedness. I first show that when welfare states are weak and credit regimes permissive, households tap into credit markets as a private coping mechanism. In restrictive regimes, households draw on savings and cut expenditures. I then turn to event studies and difference-in-differences designs based on full-population administrative data from Denmark and panel data in the U.S., to document how variation in welfare state coverage and credit access explains variation in debt burdens across income groups. The findings expand recent work in comparative political economy on the links between financial markets and welfare states, shedding light on the role of credit regimes and social policies as drivers behind indebtedness and its socio-economic and distributional consequences