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Measuring Valuation of Liquidity with Penalized Withdrawals

Author

Listed:
  • 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.

Suggested Citation

  • David Coyne & Itzik Fadlon & Tommaso Porzio, 2022. "Measuring Valuation of Liquidity with Penalized Withdrawals," NBER Working Papers 30007, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30007
    Note: AG EFG PE
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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • H0 - Public Economics - - General
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics

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