Redistributive Taxation and Personal Bankruptcy in US States

54 Pages Posted: 1 Nov 2005  

Charles Grant

University of Reading

Winfried Koeniger

University of St. Gallen; CESifo (Center for Economic Studies and Ifo Institute); Center for Financial Studies (CFS); IZA Institute of Labor Economics

Date Written: October 2005

Abstract

Both personal bankruptcy and redistributive taxes can insure households' consumption risk and both vary considerably across US states. We derive sufficient conditions under which more redistributive taxation makes bankruptcy exemptions less attractive both for the intratemporal insurance and for inter-temporal consumption smoothing. Exploiting data variation over time for 18 US states 1980-2003, we find considerable support for our model's predictions: (i) redistributive taxation and bankruptcy exemptions are negatively correlated; (ii) both policies are associated with more equal consumption growth whereas the effect on unsecured household debt is less clear-cut.

Keywords: personal bankruptcy, consumer credit, redistributive taxes and transfers

JEL Classification: E21, E61, G18

Suggested Citation

Grant, Charles and Koeniger, Winfried, Redistributive Taxation and Personal Bankruptcy in US States (October 2005). IZA Discussion Paper No. 1805. Available at SSRN: https://ssrn.com/abstract=828929

Charles Grant

University of Reading ( email )

Whiteknights
Reading, Berkshire RG6 6AH
United Kingdom

Winfried Koeniger (Contact Author)

University of St. Gallen ( email )

Swiss Institute for Empirical Economic Research
Varnb├╝elstr. 14
St.Gallen, CH-9000
Switzerland

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Center for Financial Studies (CFS) ( email )

Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Schaumburg-Lippe Str. 7/9
D-53072 Bonn
Germany

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