Working Paper: NBER ID: w30007
Authors: David Coyne; Itzik Fadlon; Tommaso Porzio
Abstract: We use penalized withdrawals from retirement savings accounts as a revealed-preference tool to document three findings on American households' valuation of liquidity. First, local supply of credit explains over 30 percent of the nationwide differences in the valuation of liquidity across labor markets. Second, locations severely affected by the Great Recession displayed large increases in the valuation of liquidity, with spillovers in local credit tightening accounting for three-thirds of the effect. Third, Black households rely more on self-insurance from penalized withdrawals, consistent with lower access to formal credit markets. Overall, our findings imply sizable welfare gains from richer policy targeting.
Keywords: liquidity; penalized withdrawals; social insurance; household finance; economic shocks
JEL Codes: D14; D53; D61; E21; G51; H0; I38; J15; R1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 20% decline in household income (G59) | 9% increase in likelihood of making a penalized withdrawal (D14) |
| local economic conditions (R11) | systemic barriers to credit access exacerbate liquidity constraints (F65) |
| Great Recession (G01) | increased penalized withdrawals in more affected areas (H84) |
| tight local credit conditions (E51) | increased penalized withdrawals (J26) |
| demand shocks and supply factors (E00) | liquidity valuation (G33) |