Endogenous debt constraints in a life-cycle model with an application to social security
This paper develops a simple life-cycle model that embeds a theory of debt restrictions based on the existence of inalienable property rights a la Kehoe and Levine [1993. Debt constrained asset markets. Review of Economic Studies 60(4), 865-888; 2001. Liquidity constrained markets versus debt constrained markets. Econometrica 69(3), 575-598]. In our environment, net debtors have the option of defaulting on unsecured debt at the cost of being subjected to wage garnishment and/or having some or all of their future assets seized by creditors. One advantage of our framework is that it encompasses two standard versions of the life-cycle model: one with perfect capital markets and one with a non-negative net-worth restriction. We study the impact of a payroll financed social security system to illustrate the role of endogenous debt constraints and compare our results to a model with exogenous debt constraints. Whereas the aggregate effects are similar under both types of constraints, the distributional consequences are found to be significantly different across debt regimes.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fernando Alvarez & Urban J. Jermann, 2000. "Efficiency, Equilibrium, and Asset Pricing with Risk of Default," Econometrica, Econometric Society, vol. 68(4), pages 775-798, July.
- Hansen, G.D., 1991.
"The Cyclical and Secular Behavior of the Labor Input : Comparing Efficiency Units and Hours Worked,"
36, California Los Angeles - Applied Econometrics.
- Hansen, G D, 1993. "The Cyclical and Secular Behaviour of the Labour Input: Comparing Efficiency Units and Hours Worked," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(1), pages 71-80, Jan.-Marc.
- Kocherlakota, Narayana R, 1996.
"Implications of Efficient Risk Sharing without Commitment,"
Review of Economic Studies,
Wiley Blackwell, vol. 63(4), pages 595-609, October.
- Narayana Kocherlakota, 2010. "Implications of Efficient Risk Sharing Without Commitment," Levine's Working Paper Archive 2053, David K. Levine.
- Kehoe, Timothy J & Levine, David K, 1993.
"Debt-Constrained Asset Markets,"
Review of Economic Studies,
Wiley Blackwell, vol. 60(4), pages 865-88, October.
- David Andolfatto & Martin Gervais, 2004.
"Human Capital Investment and Debt Constraints,"
Labor and Demography
- Mateos-Planas, Xavier & Seccia, Giulio, 2006. "Welfare implications of endogenous credit limits with bankruptcy," Journal of Economic Dynamics and Control, Elsevier, vol. 30(11), pages 2081-2115, November.
- Erich Battistin & Richard Blundell & Arthur Lewbel, 2007.
"Why is consumption more log normal than income? Gibrat's law revisited,"
IFS Working Papers
W07/08, Institute for Fiscal Studies.
- Erich Battistin & Richard Blundell & Arthur Lewbel, 2009. "Why Is Consumption More Log Normal than Income? Gibrat's Law Revisited," Journal of Political Economy, University of Chicago Press, vol. 117(6), pages 1140-1154, December.
- Erich Battistin & Richard Blundell & Arthur Lewbel, 2007. "Why is Consumption More Log Normal Than Income? Gibrat's Law Revisited," Boston College Working Papers in Economics 671, Boston College Department of Economics.
- Igor Livshits & James MacGee & Mich�le Tertilt, 2007.
"Consumer Bankruptcy: A Fresh Start,"
American Economic Review,
American Economic Association, vol. 97(1), pages 402-418, March.
- Igor Livshits & James MacGee & Michele Tertilt, 2005. "Consumer Bankruptcy: A Fresh Start," Discussion Papers 04-011, Stanford Institute for Economic Policy Research.
- Igor Livshits & James MacGee & Michele Tertilt, 2003. "Consumer bankruptcy: a fresh start," Working Papers 617, Federal Reserve Bank of Minneapolis.
- Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & Jose-Victor Rios-Rull, 2002.
"A Quantitative Theory of Unsecured Consumer Credit with Risk of Default,"
Centro de Altisimos Estudios Rios Pe©rez(CAERP)
2, Centro de Altisimos Estudios Rios Perez (CAERP).
- Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & José-Víctor Ríos-Rull, 2007. "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default," Econometrica, Econometric Society, vol. 75(6), pages 1525-1589, November.
- Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & Jose-Victor Rios-Rull, 2007. "A quantitative theory of unsecured consumer credit with risk of default," Working Papers 07-16, Federal Reserve Bank of Philadelphia.
- Kotlikoff, Laurence J, 1979. "Social Security and Equilibrium Capital Intensity," The Quarterly Journal of Economics, MIT Press, vol. 93(2), pages 233-53, May.
- Hubbard, R Glenn & Judd, Kenneth L, 1987. "Social Security and Individual Welfare: Precautionary Saving, Borrowing Constraints, and the Payroll Tax," American Economic Review, American Economic Association, vol. 77(4), pages 630-46, September.
- Jeremy Bulow & Kenneth Rogoff, 1998.
"Sovereign Debt: Is to Forgive to Forget,"
Levine's Working Paper Archive
209, David K. Levine.
- Scott Fay & Erik Hurst & Michelle J. White, 2002. "The Household Bankruptcy Decision," American Economic Review, American Economic Association, vol. 92(3), pages 706-718, June.
- Kehoe, Timothy J & Levine, David K, 2001. "Liquidity Constrained Markets versus Debt Constrained Markets," Econometrica, Econometric Society, vol. 69(3), pages 575-98, May.
- Jesus Fernández-Villaverde & Dirk Krueger, 2007.
"Consumption over the Life Cycle: Facts from Consumer Expenditure Survey Data,"
The Review of Economics and Statistics,
MIT Press, vol. 89(3), pages 552-565, August.
- Jesus Fernandez-Villaverde & Dirk Krueger, 2002. "Consumption over the Life Cycle: Facts from Consumer Expenditure Survey Data," NBER Working Papers 9382, National Bureau of Economic Research, Inc.
- Huggett, Mark, 1996. "Wealth distribution in life-cycle economies," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 469-494, December.
- Li, Wenli & Sarte, Pierre-Daniel, 2006. "U.S. consumer bankruptcy choice: The importance of general equilibrium effects," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 613-631, April.
- Juan A. Rojas & Carlos Urrutia, 2008. "Social Security with Uninsurable Income Risk and Endogenous Borrowing Constraints," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(1), pages 83-103, January.
When requesting a correction, please mention this item's handle: RePEc:eee:dyncon:v:32:y:2008:i:12:p:3745-3759. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.