Debtor Protection, Credit Redistribution, and Income Inequality

69 Pages Posted: 10 Mar 2015 Last revised: 30 Dec 2016

See all articles by Hamid Boustanifar

Hamid Boustanifar

EDHEC Business School; BI Norwegian Business School

Geraldo Cerqueiro

Catolica-Lisbon SBE

María Fabiana Penas

Universidad Torcuato Di Tella

Date Written: October 1, 2015

Abstract

A debtor-friendly personal bankruptcy regime reallocates credit by reducing its availability, particularly for low-asset individuals. We show that increasing the amount of asset protection in bankruptcy leads to higher income inequality. The rise in inequality is amplified in industries with high credit needs and is triggered by an increased income gap among self-employed individuals. We also find an increase in income inequality among salaried workers, which is explained by a drop in the wages and working hours of unskilled workers. Debtor protection thus creates an imbalance in economic opportunities among business owners that reduces the aggregate demand for unskilled labor.

Keywords: Debtor Protection, Income inequality, Credit Markets

Suggested Citation

Boustanifar, Hamid and Cerqueiro, Geraldo and Penas, María Fabiana, Debtor Protection, Credit Redistribution, and Income Inequality (October 1, 2015). TILEC Discussion Paper No. 2015-012, Available at SSRN: https://ssrn.com/abstract=2576039 or http://dx.doi.org/10.2139/ssrn.2576039

Hamid Boustanifar (Contact Author)

EDHEC Business School ( email )

393 Promenade des Anglais – BP 3116
Nice, 06202
France

BI Norwegian Business School ( email )

Oslo
Norway

Geraldo Cerqueiro

Catolica-Lisbon SBE ( email )

Palma de Cima
Lisbon, 1649-023
Portugal

María Fabiana Penas

Universidad Torcuato Di Tella ( email )

Saenz Valiente 1010
C1428BIJ Buenos Aires
Argentina

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