Working Paper: NBER ID: w11560
Authors: Midori Wakabayashi; Charles Yuji Horioka
Abstract: In this paper, we use Japanese micro data to examine what characteristics borrowing-constrained households have and whether borrowing constraints have an important influence on household consumption behavior. We identify borrowing-constrained households using three different indicators, some of which are unique to our data source, and find that the characteristics of households that are likely to be borrowing-constrained differ depending on which of the three indicators we use. We also find that changes in current income have a positive and significant impact on changes in consumption in the case of households that are likely to be borrowing-constrained but not in the case of households that are unlikely to be borrowing-constrained. This result suggests that borrowing constraints have an important influence on household consumption behavior and that the presence of borrowing constraints is one explanation for why the life cycle-permanent income hypothesis does not hold in the real world.
Keywords: borrowing constraints; consumption behavior; Japan; life cycle hypothesis
JEL Codes: D12; D91; E21; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Borrowing Constraints (G51) | Consumption Behavior (D10) |
| Current Income Changes (E25) | Consumption Changes for Borrowing-Constrained Households (D12) |
| Current Income Changes (E25) | Consumption Changes for Non-Borrowing-Constrained Households (D12) |
| Borrowing Constraints (G51) | Changes in Consumption Response to Income Changes (D12) |