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LIQUIDITY CONSTRAINTS WITH ENDOGENOUS INCOME
Author(s) -
Zhao Yucong,
Dutkowsky Donald H.,
Dunsky Robert M.
Publication year - 1999
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1999.tb01457.x
Subject(s) - economics , market liquidity , liquidity constraint , consumption (sociology) , permanent income hypothesis , household debt , spouse , constraint (computer aided design) , debt , wage , panel study of income dynamics , monetary economics , econometrics , labour economics , microeconomics , macroeconomics , mechanical engineering , social science , sociology , anthropology , engineering
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. ( JEL D91, J22)