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Income timing and liquidity constraints: Evidence from a randomized field experiment

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  • Brune, Lasse
  • Kerwin, Jason T.

Abstract

People in developing countries sometimes desire deferred income streams, which replace more-frequent income flows with a single, later lump sum. We study the effects of short-term wage deferral using a randomized experiment with participants in a temporary cash-for-work program. Workers who are assigned to lump-sum payments are five percentage points more likely to purchase a high-return investment. We discuss the role of both barriers to saving and credit constraints in explaining our results. While stated preferences for deferred payments suggest a role for savings constraints, the evidence is also consistent with a simpler model of credit constraints alone.

Suggested Citation

  • Brune, Lasse & Kerwin, Jason T., 2019. "Income timing and liquidity constraints: Evidence from a randomized field experiment," Journal of Development Economics, Elsevier, vol. 138(C), pages 294-308.
  • Handle: RePEc:eee:deveco:v:138:y:2019:i:c:p:294-308
    DOI: 10.1016/j.jdeveco.2019.01.001
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    More about this item

    Keywords

    Savings constraints; Credit constraints; Financial inclusion; Income timing;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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