A Social Policy Theory of Everyday Borrowing: On the Role of Welfare States and Credit Regimes

Debt has become an essential part of many people's daily lives. This article develops a new comparative political economy perspective on the relationship between welfare states and household borrowing. I argue that the ways in which welfare states distribute benefits, and credit regimes provide access to credit, affect how individuals address social risks and, as a consequence, shape patterns of indebtedness. Permissive credit regimes substitute for social policies in limited welfare states, pushing economically disadvantaged groups into debt. Alternatively, credit markets complement social policies in the provision of financial liquidity in comprehensive welfare states, protecting vulnerable groups through government benefits while allowing less-protected affluent groups to borrow money. In restrictive regimes, people instead rely on savings, expenditure cuts, and family support. I test these arguments using an original measure of credit regime permissiveness, cross-national survey data, and full-population administrative records from Denmark and panel data from the United States.