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 which generates consumption risk. Our data is focused on job losers. We find that less than 5% of job losers experi- ence a binding credit constraint, but for those that do, they experience significant welfare losses, and consumption growth is 24% higher than for the rest of the pop- ulation. However, even among those who are currently unconstrained and who are able to borrow if needed, consumption responds to transitory income.
Authors
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.
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.
Report details
- Publisher
- Cambridge University
Suggested citation
Crossley, T and Low, H. (2012). Job Loss, Credit Constraints and Consumption Growth. Cambridge: Cambridge University. Available at: https://ifs.org.uk/publications/job-loss-credit-constraints-and-consumption-growth (accessed: 24 April 2024).
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