Debt and Health: The Impact of Over-indebtedness on Mental Well-being in Sweden

Abstract: Household borrowing is a key element for consumption-smoothing over the life cycle. However, over-indebtedness may induce negative health impacts through uncertainty, worries, and shame for example. This paper examines how over-indebtedness affects the mental well-being in Sweden between 2010-2018. The data is collected from several Swedish authorities at the municipal and county level. In the attempt to estimate the causal relationship between debt and health, a Bartik-like instrumental variable approach is used as an empirical strategy. The main finding from the results is that an increase in the degree of over-indebtedness improves mental health conditions but worsen excessive alcohol consumption. Nonetheless, most of the estimates are imprecise and should not be interpreted as causal.