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Borrowing constraints and household labour supply


There is an extensive theoretical and empirical literature which has focused the allenlion to the repercussion of credit rationing on households consumption decision, assuming that the rationing mechanisms were independent from household labour supply. Recently this hypothesis of independence has been abandoned in favour of a more credible one in which the credit barrier depends on household labour supply. Till now most of the attention has been paid to estimate the effect of this rationing mechanism on household consumption, while there are few efforts for better understanding the link between borrowing constraints and participation decision of the household members to the labour market. If
earnings-related borrowing constraints are binding, both of the spouses and the children can be induced to work to overcome the constraint. After having studied the analytical characteristics of such modified demand systems in a lifie cycle contest, rich household economic surveys (as the SWIH for Italy and SEP for the Netherlands) and proper microeconometric techniques are the suitable instruments to investigate the empirical relevance of this effect. The study aims at giving insights about the integration between capital and labour markets, putting in evidence the relevance of a transmission channel between monetary policy and labour supply through the credit rationing mechanism which has been neglected by previous analysis.


Warandelaan 2
5037 AB Tilburg

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