ESTIMATION OF THE
ADEQUATE LIVING EXPENSES THRESHOLD
DURING THE GREEK CRISIS
Eirini Andriopoulou
Council of Economic Advisors, Ministry of Finance
Apostolos Fasianos
Council of Economic Advisors, Ministry of Finance
Athanassios Petralias
Bank of Greece
ABSTRACT
The aim of this study
is to present the underlying methodology behind the estimation of the Adequate
Living Expenses (ALE) Threshold for the Greek population. The ALE threshold was
first introduced in 2014 by the Greek authorities as a benchmark, mainly for protecting
over-indebted mortgage holders from foreclosure of the primary residence. In
this manuscript, we present alternative methodological approaches and
specifications considered to estimate this threshold and we report updated
estimates for the year 2017. The ALE threshold is defined through expenditure
for the purchase of goods and services and interpreted as the income level that
the household should possess in order to cover the level of acceptable living
expenses, following the median expenditure pattern of Greek households. By
taking into consideration the main categories of the Greek Household Budget
Survey, we examined different expenditure specifications, based on the
necessity of the needs covered by gradually excluding items that could be
considered as “luxury” items (four scenarios were developed). Quantile
regression and linear robust regression accounting for the presence of outliers
was applied and various model specifications were tested. Our results control
for household structure, degree of urbanization and mortgage holding, and
interactions among them. In 2017, for a family with two children ALE threshold ranged
from 1,196€ to 1,497€ per month, reduced by approximately 11.5% compared to
2012, depending on the expenditure specification. The estimated ALE threshold lies
considerably above the poverty line in all cases.
Keywords: Mortgage, household
budget, insolvency, reference budget, foreclosures.
JEL Classification: G18, G21
Acknowledgments: The Adequate Living Expenses threshold in Greece was first estimated in 2014,
based on 2012 Household Budget Survey data, by a team consisting of Eirini
Andriopoulou, Athanassios Petralias and Ioannis Vintzilaios, under the auspices
of the Council of Economic Advisors of the Ministry of Finance and the General
Consumers Secretariat of the Ministry for Development and Competitiveness. We
are thankful to Chrysa Leventi, De Wilde Marjolijn, Tess Penne, and the
participants of the Council of Economic Advisors research seminar in March 2019
for their useful comments. The methodology applied was agreed with the IMF, ECB
and European Commission, in the framework of the second economic adjustment
programme and was officially approved by the Governmental Council of Private Debt
Management. All the remaining errors are the responsibility of the authors. The
views expressed in the article are those of the authors and should not be
attributed neither to the Council of Economic Advisors nor to the Bank of
Greece or the Eurosystem.
Correspondence:
Athanasios Petralias
Department of
Statistics
Bank of Greece
21 El. Venizelos Av.,
10250 Athens, Greece
Email: apetralias@bankofgreece.gr