The Debt Spiral: What It Is and How Much It Costs. An Analysis of the Problem of Over-Indebtedness in Poland

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9 Sep 2026

Andrzej Rzońca

Andrzej Rzońca

CASE Advisory Council
Professor at the Warsaw School of Economics, with a postdoctoral degree in the economic sciences, Andrzej Rzońca is also a member of supervisory boards of commercial law companies. His positions held to date have included president of the board of the Association of Polish Economists, member of the Monetary Policy Council (third term), chief economist … Continued

Articles from this author:
- 172nd mBank-CASE Seminar Proceedings: The growing public debt and the associated risks
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- 165th mBank – CASE Seminar Proceedings: Is the economy doomed to a long recession?
  Forecasting during a strong shock is burdened with exceptionally high uncertainty. This gives rise to the temptation to formulate alarmist forecasts. Experiences from earlier pandemics, particularly those from the 20th century, for which we have the most data, don’t provide a basis for this. The mildest of them weakened growth by less than 1 percentage … Continued
- 144th mBank-CASE Seminar Proceedings: On Economic Growth in Europe, or, The Uncertain Growth Prospects of Western Countries
  Growth in the European Union since the outbreak of the global financial crisis is slower (1) than before the crisis, (2) than the trend would indicate, (3) than forecast and (4) than in the United States. The factors driving its weakness lie more on the supply side than the demand side. The loss of potential … Continued
Author’s articles

Andrzej Rzońca’s report, “The Debt Spiral: What It Is and How Much It Costs. An Analysis of the Problem of Over-Indebtedness in Poland,” consists of four parts.

The first part presents consumer credit from the perspective of economic theory. It begins with the classical rationale for its positive impact on welfare, derived from Friedman’s permanent income hypothesis, Modigliani and Brumberg’s life-cycle hypothesis, and Hall’s model. It then discusses four groups of conditions that must be met for this positive effect to materialise, relating to consumer rationality, the completeness and symmetry of information, market structure, and externalities. The core of this chapter is an analysis of five market imperfections – information asymmetry, bounded rationality, low financial literacy, predatory lending practices, and the concealment of product characteristics that may reverse the positive effect of credit on welfare. The chapter concludes with a synthesis identifying the circumstances in which consumer credit reduces welfare and outlining the implications for regulatory policy.

The second part defines the concept of a debt spiral, distinguishing it from related concepts (indebtedness, problem debt, and over-indebtedness) and placing it within the economic and legal literature, including in the context of the CCD2 Directive. Five mechanisms through which a debt spiral may arise are discussed: inaccurate creditworthiness assessments, microeconomic income shocks, adverse macroeconomic shocks, debt rollover in the non-bank lending sector, and behavioural mechanisms that lead to mounting debt. The report presents indicators of over-indebtedness used in the EU and Poland, including their diagnostic capacity and limitations. The final section of this part describes the scale of household credit and household indebtedness in Poland. The analysis of flows into arrears takes into account differences across market segments and products. It relies primarily on data from the Credit Information Bureau (BIK) and BIG InfoMonitor.

The third part examines the costs of the debt spiral across four dimensions. At the individual and family level, it focuses on mental and physical health costs, disruptions to family functioning, and the adverse effects of such disruptions on children. It also addresses stigmatisation and social isolation and their role in exacerbating the debt spiral. At the social level, the report discusses costs in terms of productivity and labour-market functioning. It also examines the impact of the debt spiral on financial and social exclusion, including mobility and human capital accumulation. At the macroeconomic level, it considers the relationship between household debt and economic growth, the mechanisms of debt-driven recessions and deleveraging, the risk of banking crises, and the implications for the monetary policy transmission mechanism. A central element of this part is an attempt to estimate selected costs of the debt spiral in Poland. These estimates cover some healthcare costs, the costs associated with reduced labour input and lower productivity, and certain direct fiscal costs. The report also presents hypothetical costs of a crisis as an extreme scenario.

The fourth part describes models of credit information sharing. It presents the functions of public credit registers and private credit bureaus, the differences between comprehensive and negative-only reporting, and the potential effects of information sharing, including the risks associated with it. Against this background, the Polish model is described and compared with systems operating in other countries, with its strengths and limitations identified. The part concludes with recommendations for regulatory changes, with particular emphasis on closing gaps in the coverage of the consumer credit sector.

The report is published in Polish.

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The Debt Spiral: What It Is and How Much It Costs. An Analysis of the Problem of Over-Indebtedness in Poland

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Andrzej Rzońca

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The Debt Spiral: What It Is and How Much It Costs. An Analysis of the Problem of Over-Indebtedness in Poland

Authors

Andrzej Rzońca

Articles from this author:

Related publications

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