Working Paper: CEPR ID: DP2084
Authors: Mark Taylor
Abstract: Liquidity constraints can affect self-employment in a number of ways. They can prohibit potential entrepreneurs from starting up in business, they can restrict the growth of existing entrepreneurial activities and, in the extreme, they can result in small business failure. This paper uses British panel data to investigate the effects of relaxing liquidity constraints on self-employment through the unanticipated receipt of windfall gains. The results suggest that the amount of payment received has a positive and concave effect on the probability of entering self-employment and on the performance of an existing self-employment enterprise, consistent with the liquidity constraint hypothesis.
Keywords: self-employment; labour supply; panel data
JEL Codes: J22; J23; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| redundancy payments (J65) | probability of entering self-employment (L26) |
| job-related bonuses (J33) | probability of entering self-employment (L26) |
| amount of payment received (J33) | self-employment income (L26) |
| larger payments (J33) | entrepreneurial effort (L26) |
| entrepreneurial effort (L26) | self-employment income (L26) |
| windfall payments (J33) | probability of entering self-employment (L26) |
| amount of windfall payment (J33) | probability of entering self-employment (L26) |