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Watzka, Sebastian (2013): The Effect of Household Debt Deleveraging on Unemployment Evidence from Spanish Provinces. Beiträge zur Jahrestagung des Vereins für Socialpolitik 2013: Wettbewerbspolitik und Regulierung in einer globalen Wirtschaftsordnung - Session: Financial Frictions and Business Cycles F02-V1

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Abstract

The Spanish economy is currently plagued by a deep recession with very high unemployment. We ask how much of the unemployment increase in Spain can be traced back to the debt deleveraging needs of Spanish households. We use provincial household debt and sectoral unemployment data and follow Mian and Sufi (2012) to isolate the effect of household debt on Spanish unemployment. We find that the level of household sector debt in Spanish provinces in 2007 is a highly significant determinant of the subsequent increase in provincial unemployment from 2007 to 2010. Our estimates indicate that approximately 1/3 of the increase in overall Spanish unemployment over that period can be traced back to high household debt levels.

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