Income timing and liquidity constraints: Evidence from a randomized field experiment

Lasse Brune, Jason T. Kerwin

Research output: Contribution to journalArticlepeer-review

Abstract

People in developing countries sometimes desire deferred income streams, which replace more-frequent income flows with a single, later lump sum. We study the effects of short-term wage deferral using a randomized experiment with participants in a temporary cash-for-work program. Workers who are assigned to lump-sum payments are five percentage points more likely to purchase a high-return investment. We discuss the role of both barriers to saving and credit constraints in explaining our results. While stated preferences for deferred payments suggest a role for savings constraints, the evidence is also consistent with a simpler model of credit constraints alone.

Original languageEnglish (US)
Pages (from-to)294-308
Number of pages15
JournalJournal of Development Economics
Volume138
DOIs
StatePublished - May 2019

Bibliographical note

Funding Information:
A previous version of this paper circulated under the title “Income Timing, Savings Constraints, and Temptation Spending: Evidence from a Randomized Field Experiment.” We thank Ndema Longwe for outstanding fieldwork management, and Moffat Kayembe and Carl Bruessow from Mulanje Mountain Conservation Trust for their cooperation and guidance. Esperanza Martinez Maldonado provided excellent research assistance. We are grateful to Dean Yang, Mel Stephens, Charlie Brown, Steve Leider, Rebecca Thornton, Jeff Smith, David Lam, John DiNardo, Aditya Aladangady, Eric Chyn, Jay Coggins, Johannes Haushofer, Ben Meiselman, Terry Roe, and seminar participants at Michigan, Minnesota, Yale, IPA, and the Society of Labor Economics for helpful comments. We are grateful for research support from the IPA/Yale Savings and Payments Research Fund (funded by the Bill and Melinda Gates Foundation), the University of Michigan Population Studies Center, and the Michigan Institute for Teaching and Research in Economics. Kerwin's work on this study was supported in part by an NIA training grant to the Population Studies Center at the University of Michigan (T32 AG000221), as well as by fellowship funding from the Rackham Graduate School. This study is registered with the AEA RCT Registry under registration number AEARCTR-0000437. All errors and omissions are our own. Click here to access the online appendices to the paper.

Keywords

  • Credit constraints
  • Financial inclusion
  • Income timing
  • Savings constraints

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