Abstract

http://ssrn.com/abstract=1985272
 
 

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Liquidity Constraints and Consumer Bankruptcy: Evidence from Tax Rebates


Tal Gross


Columbia University - Department of Health Policy and Management

Matthew Notowidigdo


University of Chicago - Booth School of Business

Jialan Wang


Consumer Financial Protection Bureau

January 14, 2012


Abstract:     
This paper estimates the extent to which legal fees prevent liquidity-constrained households from declaring bankruptcy. To do so, it studies how the 2001 and 2008 income tax rebates affected consumer bankruptcy filings. We exploit the randomized timing of the rebate checks and estimate that the rebates caused a significant, short-run increase in consumer bankruptcies in both years, with larger effects in 2008 when the rebates were more generous and more widely distributed. Using hand-collected data from individual bankruptcy petitions, we document that the rebates caused an increase in the total liabilities and debt-to-income ratios of filers.

Number of Pages in PDF File: 41

Keywords: bankruptcy, household finance, BAPCPA, tax rebates

JEL Classification: D12, H31,K19,K29

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Date posted: January 15, 2012 ; Last revised: May 16, 2012

Suggested Citation

Gross, Tal and Notowidigdo, Matthew and Wang, Jialan, Liquidity Constraints and Consumer Bankruptcy: Evidence from Tax Rebates (January 14, 2012). Available at SSRN: http://ssrn.com/abstract=1985272 or http://dx.doi.org/10.2139/ssrn.1985272

Contact Information

Tal Gross (Contact Author)
Columbia University - Department of Health Policy and Management ( email )
600 West 168th Street, 6th Floor
New York, NY 10032
United States
HOME PAGE: http://www.talgross.com
Matthew Notowidigdo
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
Jialan Wang
Consumer Financial Protection Bureau ( email )
United States
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