Are poor households credit-constrained or myopic? Evidence from a South African panel
Credit constraints are an almost ubiquitous assumption in development economics.� Yet direct evidence for credit constraints is limited, and many observations consistent with credit constraints are equally compatible with precautionary saving or myopic (non-forward-looking) consumption.� Using household panel data and a source of widely anticipated income in South Africa, this paper first tests and rejects the standard consumption model with perfect capital markets.� The standard model enriched with credit constraints is then contrasted with precautionary saving and myopic consumption as alternative explanations for the observed expenditure pattern.� The standard model with credit constraints cannot be rejected in favour of precautionary saving or myopic consumption.
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