Borrowing Constraints and Consumption Behavior in Japan
Osaka Prefecture University
Charles Yuji Horioka
Osaka University - Institute of Social and Economic Research (ISER); National Bureau of Economic Research (NBER)
ISER Discussion Paper No. 640
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.
Number of Pages in PDF File: 43
Keywords: borrowing constraints, consumption behavior, life cycle, liquidity constraints
JEL Classification: D12, D91, E21, O16working papers series
Date posted: August 17, 2005
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