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.
Authors
![Hamish Low](/sites/default/files/styles/square_desktop/public/2022-07/Hamish_Low.jpg?itok=SxQtBzSd)
Research Fellow University of Oxford
Hamish is the James Meade Professor of Economics at the University of Oxford, a Professorial Fellow of Nuffield College and a Research Fellow at IFS.
![Thomas Crossley](/sites/default/files/styles/square_desktop/public/2022-07/Tom%20Crossley.jpg?itok=8BNVWAtq)
Research Fellow University of Michigan
Tom is a Research Fellow at IFS, a Research Professor for the Institute for Social Research at the University of Michigan.
Journal article details
- DOI
- 10.1162/REST_a_00417
- Publisher
- MIT Press
- ISSN
- 0034-6535
- Issue
- December 2014
Suggested citation
Crossley, T and Low, H. (2014). 'Job loss, credit constraints and consumption growth' (2014)
More from IFS
Understand this issue
![Child drawing](/sites/default/files/styles/square_desktop/public/2024-04/child-drawing_0.jpg?itok=Qq8x74st)
Sure Start achieved its aims, then we threw it away
15 April 2024
![Female surgeon](/sites/default/files/styles/square_desktop/public/2024-04/female-surgeon-2.jpg?itok=DxoZaqMs)
If you can’t see it, you can’t be it: role models influence female junior doctors’ choice of medical specialty
24 April 2024
![Surgery](/sites/default/files/styles/square_desktop/public/2024-02/NHS2.jpg?itok=OQb9UVp8)
The NHS waiting list: when will it come down?
29 February 2024
Policy analysis
![Shopping street](/sites/default/files/styles/square_desktop/public/2024-06/Street-scene-.jpg?itok=R39cR6Xp)
How do the last five years measure up on levelling up?
19 June 2024
![London](/sites/default/files/styles/square_desktop/public/2024-06/London.jpg?itok=zm-17Mfa)
The Conservatives and the Economy, 2010–24
3 June 2024
![Terrace housing](/sites/default/files/styles/square_desktop/public/2024-06/terrace%20housing%20feature.jpg?itok=eloSiGLE)
Making mortgage guarantees permanent will help some first-time buyers, but only if they can afford a bigger mortgage
6 June 2024
Academic research
![Fiscal Studies - 2024 - June cover](/sites/default/files/styles/portrait/public/2024-06/Fiscal%20Studies%20-%202024%20-%20-%20June%20cover.jpg?itok=mQEwRc_w)
Income inequality in Ireland, 1987–2019
28 June 2024
![Fiscal Studies - 2024 - June cover](/sites/default/files/styles/portrait/public/2024-06/Fiscal%20Studies%20-%202024%20-%20-%20June%20cover.jpg?itok=mQEwRc_w)
Components of the evolution of income inequality in Sweden, 1990–2021
28 June 2024
![Working paper cover](/sites/default/files/styles/portrait/public/2024-06/WP202428-The-impact-of%20labour-demand-shocks-when-occupational-labour-supplies-are-heterogeneous.jpg?itok=Erq9-V9O)
The impact of labour demand shocks when occupational labour supplies are heterogeneous
28 June 2024