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Housing Wealth, Liquidity Constraints and Self-Employment

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  • Richard Disney
  • John Gathergood

Abstract

This paper investigates the existence of liquidity constraints facing entrepreneurs in the United Kingdom. Using a household-level panel data set, entry to selfemployment is shown to be a function of household net worth. We use inheritances and unanticipated movements in house prices as instruments for shocks to liquidity. Results indicate that inheritances are a poor instrument for liquidity constraints because both past and future inheritances predict entry to self-employment. House prices shocks are a more plausible instrument because self-employed households disproportionately re-mortgage, but our results again indicate little evidence of house price shocks unbinding liquidity constraints facing the would-be self-employed.

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Paper provided by University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM) in its series Discussion Papers with number 08/03.

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Handle: RePEc:not:notcfc:08/03

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Keywords: Self-employment; liquidity; windfalls.;

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  1. Bruce D. Meyer, 1990. "Why Are There So Few Black Entrepreneurs?," NBER Working Papers 3537, National Bureau of Economic Research, Inc.
  2. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1994. "Entrepreneurial Decisions and Liquidity Constraints," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 334-347, Summer.
  3. Joseph G. Altonji & Thomas A. Dunn, 1994. "An Intergenerational Model of Wages, Hours and Earnings," NBER Working Papers 4950, National Bureau of Economic Research, Inc.
  4. Andrew Henley, 2005. "Job Creation by the Self-employed: The Roles of Entrepreneurial and Financial Capital," Small Business Economics, Springer, Springer, vol. 25(2), pages 175-196, 09.
  5. Taylor, Mark P, 1999. "Self-Employment and Windfall Gains in Britain: Evidence From Panel Data," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2084, C.E.P.R. Discussion Papers.
  6. Parker,Simon C., 2006. "The Economics of Self-Employment and Entrepreneurship," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521030632.
  7. Lindh, Thomas & Ohlsson, Henry, 1996. "Self-Employment and Windfall Gains: Evidence from the Swedish Lottery," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 106(439), pages 1515-26, November.
  8. Marco Cagetti & Mariacristina De Nardi, 2005. "Entrepreneurship, frictions, and wealth," Working Paper Series, Federal Reserve Bank of Chicago WP-05-09, Federal Reserve Bank of Chicago.
  9. Blanchflower, David G & Oswald, Andrew J, 1998. "What Makes an Entrepreneur?," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 16(1), pages 26-60, January.
  10. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(4), pages 808-27, August.
  11. Evans, David S & Leighton, Linda S, 1989. "Some Empirical Aspects of Entrepreneurship," American Economic Review, American Economic Association, American Economic Association, vol. 79(3), pages 519-35, June.
  12. Erik Hurst & Annamaria Lusardi, 2004. "Liquidity Constraints, Household Wealth, and Entrepreneurship," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 112(2), pages 319-347, April.
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Cited by:
  1. Dorothea Schaefer & Oleksandr Talavera & Charlie Weir, 2010. "Entrepreneurship, Windfall Gains and Financial Constraints: Evidence from Germany," University of East Anglia Applied and Financial Economics Working Paper Series, School of Economics, University of East Anglia, Norwich, UK. 009, School of Economics, University of East Anglia, Norwich, UK..
  2. Michael S. Dahl & Mirjam van Praag & Peter Thompson, 2014. "Entrepreneurial Couples," Tinbergen Institute Discussion Papers, Tinbergen Institute 14-055/V, Tinbergen Institute.
  3. Frank M. Fossen, 2012. "Risk Attitudes and Private Business Equity," Discussion Papers of DIW Berlin 1209, DIW Berlin, German Institute for Economic Research.
  4. Sousa, Ricardo M., 2010. "Consumption, (dis)aggregate wealth, and asset returns," Journal of Empirical Finance, Elsevier, Elsevier, vol. 17(4), pages 606-622, September.
  5. Richard Disney & John Gathergood, 2013. "House Prices, Wealth Effects and Labour Supply," Discussion Papers, University of Nottingham, School of Economics 13/02, University of Nottingham, School of Economics.
  6. Simoes, Nadia & Moreira, Sandrina B. & Crespo, Nuno, 2013. "Individual Determinants of Self-Employment Entry – What Do We Really Know?," MPRA Paper 48403, University Library of Munich, Germany.
  7. Bracke, Philippe & Hilber, Christian & Silva, Olmo, 2013. "Homeownership and Entrepreneurship: The Role of Commitment and Mortgage Debt," IZA Discussion Papers 7417, Institute for the Study of Labor (IZA).
  8. Weber, Jeremy G. & Key, Nigel, 2013. "Do Wealth Gains from Land Appreciation Cause Farmers to Expand Acreage or Buy Land?," 2014 Allied Social Science Association (ASSA) Annual Meeting, January 3-5, 2014, Philadelphia, PA, Agricultural and Applied Economics Association 161893, Agricultural and Applied Economics Association.
  9. Lofstrom, Magnus & Bates, Timothy & Parker, Simon C., 2014. "Why are some people more likely to become small-businesses owners than others: Entrepreneurship entry and industry-specific barriers," Journal of Business Venturing, Elsevier, vol. 29(2), pages 232-251.
  10. Darja Reuschke, 2011. "Self-Employment and Geographical Mobility in Germany," SOEPpapers on Multidisciplinary Panel Data Research, DIW Berlin, The German Socio-Economic Panel (SOEP) 417, DIW Berlin, The German Socio-Economic Panel (SOEP).
  11. Weber, Jeremy G. & Key, Nigel, 2013. "Does proprietor wealth influence small business decisions? Land appreciation and farm business borrowing, land ownership, and output," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C., Agricultural and Applied Economics Association 150408, Agricultural and Applied Economics Association.

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