Work

Job Loss, Credit Constraints, and Consumption Growth

Year: 2013

Type: article

Abstract: We use direct evidence on credit constraints to study their importance for household consumption growth and for welfare. We distentangle the direct effect on consumption growth of a currently binding credit constraint from the indirect effect of a potentially binding credit constraint that generates consumption risk. Our data are focused on job losers. We find that less than 5% of job losers experience a binding credit constraint, but those who do experience significant welfare losses, and consumption growth is 24% higher than for the rest of the population. However, even among those who are unconstrained and are able to borrow if needed, consumption responds to transitory income.

Source: The Review of Economics and Statistics

DOI: 10.1162/rest_a_00417

Authors: Thomas F. Crossley, Hamish W. Low

Institutions: University of Essex, Koç University, Institute for Fiscal Studies, University of Cambridge

Language: English

Topic: Financial Literacy, Pension, Retirement Analysis

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDGs: Decent work and economic growth, No poverty

Open Access status: bronze

Funder: Economic and Social Research Council