Intergenerational Transfers and Liquidity Constraints

Donald Cox ()

The Quarterly Journal of Economics, 1990, vol. 105, issue 1, pages 187-217

Abstract: A growing body of evidence indicates that liquidity constraints could affect a substantial proportion of U.S. consumers, but little is known about why these constraints might exist. An important, but little explored, issue is the relationship between inter vivos intergenerational transfers and liquidity constraints. These transfers can ease borrowing constraints. Empirical transfer patterns match those predicted from a model in which transfers are allocated to liquidity-constrained consumers. In particular, the distinction between current and permanent incomes of potential recipients is a key aspect of private-transfer behavior. The findings have important implications for our understanding of consumer behavior. Copyright 1990, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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