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Funding Self-Employment: The Role of Consumer Credit

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  • Kneiding, Christoph

    ()
    (LFS Financial Systems)

  • Kritikos, Alexander S.

    ()
    (University of Potsdam, DIW Berlin)

Abstract

This paper investigates whether self-employed households use consumer loans – in particular instalment loans and overdrafts – to finance business activities. Controlling for financial and non-financial household variables we show that self-employed households particularly use personal overdrafts significantly more often than employee households. When analyzing the correlation between consumer loan take-ups and consumption of self-employed in comparison to employee households, we find first evidence that overdrafts are used by self-employed to finance their business as well. This indicates that intermingling constitutes a financing strategy when regular business loans might not be accessible.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6093.

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Length: 26 pages
Date of creation: Oct 2011
Date of revision:
Publication status: published in: Applied Economics, 2013, 45 (13), 1741-1749
Handle: RePEc:iza:izadps:dp6093

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Keywords: small business finance; financial intermingling; consumer credit;

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References

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  1. Marco Caliendo & Alexander S. Kritikos, 2008. "Start-Ups by the Unemployed: Characteristics, Survival and Direct Employment Effects," Working Papers, Hanseatic University, Germany, Department of Economics 008, Hanseatic University, Germany, Department of Economics.
  2. Alexander S. Kritikos & Christoph Kneiding & Claas Christian Germelmann, 2009. "Demand Side Analysis of Microlending Markets in Germany," Discussion Papers of DIW Berlin 903, DIW Berlin, German Institute for Economic Research.
  3. Naomi E. Feldman & Joel Slemrod, 2007. "Estimating tax noncompliance with evidence from unaudited tax returns," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 117(518), pages 327-352, 03.
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  7. Marco Caliendo & Frank M. Fossen & Alexander S. Kritikos, 2006. "Risk Attitudes of Nascent Entrepreneurs: New Evidence from an Experimentally-Validated Survey," Discussion Papers of DIW Berlin 600, DIW Berlin, German Institute for Economic Research.
  8. Dietmar Harhoff & Timm Körting, 1998. "Lending Relationships in Germany: Empirical Results from Survey Data," CIG Working Papers, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) FS IV 98-06, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
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  18. Bruce Bradbury, 1996. "Are the Low Income Self-employed Poor?," Discussion Papers, University of New South Wales, Social Policy Research Centre 0073, University of New South Wales, Social Policy Research Centre.
  19. Runkle, David E., 1991. "Liquidity constraints and the permanent-income hypothesis : Evidence from panel data," Journal of Monetary Economics, Elsevier, Elsevier, vol. 27(1), pages 73-98, February.
  20. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 108(3), pages 604-631, June.
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  22. J. William Petty & William D. Bygrave, 1993. "What Does Finance Have to Say to the Entrepreneur?," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, Pepperdine University, Graziadio School of Business and Management, vol. 2(2), pages 125-137 , Spring.
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Cited by:
  1. Åstebro, Thomas & Chen, Jing, 2014. "The entrepreneurial earnings puzzle: Mismeasurement or real?," Journal of Business Venturing, Elsevier, vol. 29(1), pages 88-105.
  2. Alexander S. Kritikos & Christoph Kneiding & Claas Christian Germelmann, 2009. "Demand Side Analysis of Microlending Markets in Germany," Discussion Papers of DIW Berlin 903, DIW Berlin, German Institute for Economic Research.

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