Household financial fragility in Brazil (2005–2023): a minskyan analysis

Abstract

The increase in households’ indebtedness has been a striki ng feature of the Brazilian economy since the 2000s. This paper aims at analyzing the evolution of Brazilian households’ indebtedness and financial fragility from 2005 to 2023. The hypothesis is that ‘Great Indebtedness’ is related to an increase in Brazilian households’ financial fragility. As a theoretical reference, the paper uses the Minskyan idea of ‘survival constraint,’ originally used to analyze the management of cash flows and balance sheets by firms, applied to households: to ‘survive,’ households are required to keep cash-inflows and outflows balanced – in their case, this word is even more appropriate, because personal bankruptcy can be associated with evictions, poverty, and famine, among other social vulnerabilities. In the empirical part, the paper combines an analysis of descriptive statistics of BCB data and a novel composite index of Brazilian households’ financial fragility based on debt service, labor underutilization, quality of loans and delinquency rates. An analysis of data suggests that financial fragility follows the dynamics of mini-cycles, and periods of increase in indebtedness are not necessarily contemporary to periods of increasing financial fragility: for instance, the COVID-19 crisis prompted a significant increase in indebtedness, but other policies such as unconditional cash transfers were able to provide the necessary cash-flows for Brazilian households managing their ‘survival constraints’ in a more flexible way. Despite this, we highlight the indebtedness and financial fra gility of households is a major feature of Brazil’s economic and social degradation nowadays.