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Title:Consumption Smoothing and the Structure of Labor and Credit Markets PDF Logo
Authors:Bertola, Giuseppe
Koeniger, Winfried
Issue Date:2004
Series/Report no.:IZA Discussion paper series 1052
Abstract:Smoother labor incomes alleviate credit constraints by reducing workers' desire to borrow, and prospects of upward income mobility have smaller beneficial effects for currently poor workers when borrowing constraints are binding. These simple theoretical insights are consistent with the empirically more pronounced tendency of poor would-borrowers to favor government redistribution in countries where consumer credit is relatively scarce. They may also explain observed institutional patterns across countries and markets: policies that reduce the dispersion and volatility of labor income appear to be more prevalent in countries where inefficient legal systems restrict borrowing opportunities. Our theoretical perspective and empirical results offer more general insights as to ways in which historically determined features and politico-economic interactions may jointly shape institutional aspects of different markets, and as to appropriate design of reform processes.
Subjects:labor market institutions
consumer credit
redistribution
borrowing constraints
JEL:E21
E61
E24
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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