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Consumption Smoothing and the Structure of Labor and Credit Markets

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  • Bertola, Giuseppe

    ()
    (EDHEC Business School)

  • Koeniger, Winfried

    ()
    (University of St. Gallen)

Abstract

Smoother labor incomes alleviate credit constraints by reducing workers' desire to borrow, and prospects of upward income mobility have smaller beneficial effects for currently poor workers when borrowing constraints are binding. These simple theoretical insights are consistent with the empirically more pronounced tendency of poor would-borrowers to favor government redistribution in countries where consumer credit is relatively scarce. They may also explain observed institutional patterns across countries and markets: policies that reduce the dispersion and volatility of labor income appear to be more prevalent in countries where inefficient legal systems restrict borrowing opportunities. Our theoretical perspective and empirical results offer more general insights as to ways in which historically determined features and politico-economic interactions may jointly shape institutional aspects of different markets, and as to appropriate design of reform processes.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1052.

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Length: 31 pages
Date of creation: Mar 2004
Date of revision:
Publication status: published in: European Economic Review, 2007, 51 (8), 1941-1958
Handle: RePEc:iza:izadps:dp1052

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Keywords: labor market institutions; consumer credit; redistribution; borrowing constraints;

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  1. Daron Acemoglu & Robert Shimer, 1999. "Efficient Unemployment Insurance," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 107(5), pages 893-928, October.
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Citations

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Cited by:
  1. Giuseppe Bertola, 2004. "Verkrustete Arbeitsmärkte: auf dem Weg in die Arbeitslosigkeit?," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 57(17), pages 24-27, 09.
  2. B. Gabriela Mundaca & Jon Strand, 2004. "A Risk Allocation Approach to Optimal Exchange Rate Policy," CESifo Working Paper Series 1361, CESifo Group Munich.
  3. Alfonso Arpaia & Gilles Mourre, 2009. "Institutions and performance in European labour markets: taking a fresh look at evidence," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 391, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  4. Giuseppe Bertola, 2004. "Creaking Labour Markets: Migrating into Unemployment?," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 5(3), pages 48-52, 09.
  5. Mabbett, Deborah, 2004. "Fiscal stabilisers in Europe: the macroeconomic impact of tax and benefit systems," EUROMOD Working Papers EM7/04, EUROMOD at the Institute for Social and Economic Research.
  6. Serena Trucchi, 2011. "How credit markets affect homeownership: an explanation based on differences between Italian regions," CeRP Working Papers 122, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  7. repec:iza:izadps:dp1805 is not listed on IDEAS
  8. Christian Dreger & Manuel Art�s & Rosina Moreno & Raúl Ramos & Jordi Suri�ach, 2007. "Study on the feasibility of a tool to measure the macroeconomic impact of structural reforms," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 272, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.

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