Household Debt and Income Inequality in Thailand: A Vector Autoregressive Analysis

This study examines the dynamic relationships between household debt, income, GDP, and income inequality in Thailand, a nation grappling with rising household debt and persistent income disparities. Using a 19-year dataset, the research employs a Bayesian VAR (BVAR) model to explore the interdependencies among these variables and Impulse Response Function (IRF) analysis to evaluate their short-term and long-term adjustments to economic shocks. The findings reveal that household debt exhibits strong persistence and is positively influenced by income inequality, underscoring the role of disparities in driving debt accumulation. Conversely, income and GDP demonstrate resilience, with income positively influenced by GDP and negatively impacted by household debt, reflecting the burden of rising debt on income generation. GDP is shown to play a pivotal role in sustaining economic stability, while income inequality emerges as a persistent structural issue, amplified by household debt. The IRF analysis further reveals that a shock in household debt leads to a temporary decline in income and GDP, followed by stabilization in the medium term. However, income inequality responds positively to debt shocks, highlighting the disproportionate impact on low-income households and the long-term challenges of addressing inequality. The study's findings emphasize the need for targeted policies to manage household debt, promote equitable income distribution, and foster sustainable economic growth. Recommendations include debt restructuring programs, financial literacy campaigns, and progressive taxation to reduce disparities and enhance economic resilience.This research contributes to the understanding of the intricate relationships between debt, income, and inequality, offering insights for policymakers in Thailand and similar economies.