Income Volatility and Residential Mortgage Delinquency: Evidence from 12 EU countries

We investigate the socio-economic determinants of mortgage delinquency in 12 EU countries and observe that income volatility significantly increases the mortgage delinquency risk. This pattern even holds for borrowers with higher-income profiles if volatility in income is high enough. From this result we can draw the following conclusions i) mortgage protection insurance policies might be failing to cover those borrowers most in need ii) the existence of credit market imperfections, and iii) the inability for a number of borrowers most at income risk to accumulate precautionary savings in order to meet mortgage payments when shocks in income arise.Income volatility,mortgage delinquency,mortgage insurance

On the Negative Relationship between Labor Income Uncertainty and Homeownership: Risk Aversion vs. Credit Constraints

In this paper we test for the first time whether the driving force behind the negative effect of income uncertainty on owner-occupancy propensities is risk aversion or credit constraints. To disentangle this puzzle we estimate reduced form equations using Italian data. Consistent with the previous empirical evidence in the US, our results confirm that in Italy both labor income uncertainty and credit constraints exert a significant negative effect on the probability of homeownership. However, our main findings indicate that the negative relationship between labor income uncertainty and homeownership is driven by households’ risk aversion.Homeownership,income uncertainty,credit constraints

EARNINGS RISK AND DEMAND FOR HIGHER EDUCATION: A CROSS-SECTION TEST FOR SPAIN

We develop a simple human capital model for optimum schooling length when earnings are stochastic, and highlight the pivotal role of risk attitudes and the schooling gradient of earnings risk. We use Spanish data to document the gradient and to estimate individual response to earnings risk in deciding on attending university education, by measuring risk as the residual variance in regional earnings functions. We find that the basic response is negative but that in households with lower risk aversion, the response will be dampened substantially and may even be reversed to positive.earnings risk,schooling decisions,

An Empirical Note on the Relationship between Unemployment and Risk-Aversion

In this paper we use a direct measure of individual risk-aversion to examine the relationship between risk-aversion and unemployment. Contrary to what the simple search model predicts, we observe that more risk-averse individuals are more likely to be unemployed. We present extensions of the search model that can reconcile the theory with the relationships observed in the data.Unemployment,job-search,risk-aversion

Is there a Risk-Return Trade-off across Occupations? Evidence from Spain

We use data from Spain to test for an effect of earnings risk and skewness on individual wages. We carry out separate estimation for men, women, public and private sector employees. In accordance with previous evidence for the US we show the existence of a risk-return trade-off across occupations in the Spanish labour market. These results are in conformity with preferences of risk-averse individuals with decreasing absolute risk aversion.Risk-aversion, skewness affection,occupational choices,compensating wage differentials

Decentralization, happiness and the perception of institutions

This paper analyses whether the different powers and resources at the disposal of local and regional governments across Europe deliver greater satisfaction with political institutions and lead to greater personal happiness. The analysis uses microdata from the four available waves of the European social survey (2002, 2004, 2006 and 2008), including more than 160,000 observations of individuals living in 29 European countries. Our results reveal that political and fiscal decentralization have a positive and significant effect on individuals' overall happiness. Fiscal decentralization also exerts a significant effect on the level of satisfaction with political and economic institutions and with the education and health systems, whereas the effect of political decentralization on these variables is more limited. The results show that citizens seem to be happier with the actual capacity of their local governments to deliver than with the general principle that they can have a say on their daily politics and policies.Happiness; well-being; satisfaction; fiscal and political decentralization; Europe