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Consumption Smoothing and the Structure of Labor and Credit Markets

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  • Winfried Koeniger
  • Giuseppe Bertola

Abstract

When borrowing is limited by possible insolvency, a higher lower bound for future income affords earlier consumption and higher welfare. Limited opportunities for consumption smoothing also imply that prospects of upward income mobility have smaller beneficial effects for workers whose labor income is temporarily low. 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 also offer a rationale for observed patterns of institutional covariation. In countries where inefficient legal systems restrict borrowing opportunities, policies that reduce the dispersion and volatility of labor income alleviate credit constraints. Empirical support for this proposition offers 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 Society for Economic Dynamics in its series 2004 Meeting Papers with number 263.

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Date of creation: 2004
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Handle: RePEc:red:sed004:263

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Keywords: liquidity constraints; redistribution;

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Cited by:
  1. 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).
  2. 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.
  3. B. Gabriela Mundaca & Jon Strand, 2004. "A Risk Allocation Approach to Optimal Exchange Rate Policy," CESifo Working Paper Series 1361, CESifo Group Munich.
  4. repec:iza:izadps:dp1805 is not listed on IDEAS
  5. Alfonso Arpaia & Gilles Mourre, 2009. "Institutions and Performance in European Labour Markets: Taking a Fresh Look at Evidence," Working Papers CEB 09-049.RS, ULB -- Universite Libre de Bruxelles.
  6. 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 272, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  7. Giuseppe Bertola, 2004. "Creaking Labour Markets: Migrating into Unemployment?," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 5(3), pages 48-52, 09.
  8. 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.

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