A Life-cycle Consumption Model with Liquidity Contraints: Theory and Empirical Results

Randall P Mariger

Econometrica, 1987, vol. 55, issue 3, 533-57

Abstract: A structural consumption model incorporating endogenous liquidity constraints is fit to a cross section of 798 U.S. families. Liquidity constrained families are estimated to constitute 19.4 percent of the population sampled, a group that accounts for 16.7 percent of consumption in the population sampled. In-sample simulations of the model suggest that a temporary tax has three to four times more impact on aggregate consumption than it would if liquidity constraints were not in effect. Copyright 1987 by The Econometric Society.

Date: 1987
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