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.

This paper investigates the connection between credit rationing and private intergenerational transfers. The research is motivated by the idea that private transfers may be a source of funds for consumers who have difficulty borrowing from financial intermediaries. This idea has important implications for consumer behavior, and economists have begun to think about it, but they have given it little empirical attention. Using the 1983 Survey of Consumer Finances, we find that private transfers do tend to be targeted toward consumers who face credit rationing. But we also find that a substantial fraction of U.S. consumers are liquidity-constrained even if one allows for the possibility of private transfers.