Household indebtedness and multidimensional poverty: evidence from China

Household indebtedness has risen sharply and reached unprecedented levels globally. Low-income households disproportionately bear the burden of this debt, making them particularly vulnerable to over-indebtedness and financial vulnerabilities. This article examines the complex relationship between household indebtedness and multidimensional poverty, accounting for household heterogeneity. Using data from the China Household Financial Survey, we employ both traditional linear regression models and semi-parametric Generalized Additive Models (GAM) to uncover a non-linear relationship between household indebtedness and multidimensional poverty. The analysis finds a dual-threshold impairing effect of household indebtedness on multidimensional poverty. Furthermore, the impact of indebtedness varies significantly across households based on financial and demographic characteristics. Households with solvency-strain, those with credit-constraints, minority households, female-household heads, and those without government subsidies, are disproportionately affected by these dual-threshold effects. Notably, these adverse effects are consistent across both rural and urban households. Robustness checks and endogeneity analyses, conducted using a two-step generalized additive model (2SGAM), validate the findings and reinforce the reliability of the results. Our findings provide new insights into the non-linear relationship between household indebtedness and multidimensional poverty and offer evidence for policymakers to guide accessibility of household credit facilities.