Food Insecurity, Income Volatility and Liquidity Constraints

Abstract: Food insecurity is a pertinent problem in the United States. In this paper, the relationship between food insecurity and liquidity constraints is investigated. Previous literature has explored this relationship. However, this paper seeks to contribute to the literature by employing a proxy for liquidity constraints that may capture more attributes of liquidity constrained households than previously used. The proxy was estimated in a two stage process, using two data sets. First, using the Survey of Consumer Finances (SCF), the probability that a household is denied credit is estimated using explanatory variables common to both SCF and the Survey of Income and Program Participation (SIPP). This estimation was then use to created fitted values in the SIPP data set, which were then used as the proxy for liquidity constraints. In a logistic regression model, it was found that liquidity constraints increase the probability of being food insecure only in the presence of a negative income shock. This is expected, as a negative income shock likely triggers demand for credit in order to maintain food security.