Crossley, T. and Low, H.

Job Loss, Credit Constraints and Consumption Growth

CWPE1223

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 which generates consumption risk. Our data is focused on job losers. We find that less than 5% of job losers experience 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 population. However, even among those who are currently unconstrained and who are able to borrow if needed, consumption responds to transitory income.

Keywords: Job Loss, Credit Constraints, Consumption

JEL Codes: D12 D91 J64

Author links:

PDF: https://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1223.pdf

Open Access Link: https://doi.org/10.17863/CAM.1043

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