Liquidity constraints with endogenous income

Yucong Zhao, Donald H. Dutkowsky, Robert M. Dunsky

Research output: Contribution to journalArticle

Abstract

This article examines liquidity constraints within the household's intertemporal model with nonseparable consumption and leisure. The model includes wage income in the minimum wealth constraint. We derive an estimable equation for employed households that holds whether or not the family is credit constrained. The formulation enables direct testing for liquidity constraints. Empirical findings using the Panel Study of Income Dynamics strongly support the existence of debt constraints. Credit constrained households have significantly lower levels of consumption, disposable income, saving, and wage rates, a higher average propensity to consume, and smaller labor hours for the spouse but not the head.

Original languageEnglish (US)
Pages (from-to)692-705
Number of pages14
JournalEconomic Inquiry
Volume37
Issue number4
DOIs
StatePublished - Oct 1999

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics

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