Borrowing Constraints and Consumption Behavior in Japan

Midori Wakabayashi and Charles Horioka ()

No 11560, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper, we use Japanese micro data to examine what characteristics borrowing-constrained households have and whether borrowing constraints have an important influence on household consumption behavior. We identify borrowing-constrained households using three different indicators, some of which are unique to our data source, and find that the characteristics of households that are likely to be borrowing-constrained differ depending on which of the three indicators we use. We also find that changes in current income have a positive and significant impact on changes in consumption in the case of households that are likely to be borrowing-constrained but not in the case of households that are unlikely to be borrowing-constrained. This result suggests that borrowing constraints have an important influence on household consumption behavior and that the presence of borrowing constraints is one explanation for why the life cycle-permanent income hypothesis does not hold in the real world.

JEL-codes: D12 D91 E21 O16 (search for similar items in EconPapers)
Date: 2005-08
New Economics Papers: this item is included in nep-mac and nep-sea
Note: EFG
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Citations: View citations in EconPapers (13)

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Working Paper: Borrowing Constraints and Consumption Behavior in Japan (2005)
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