Redistributive Taxation and Personal Bankruptcy in U.S. States

Abstract

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. AbstractPersonal bankruptcy regulation and redistributive taxes and transfers vary considerably across U.S. states and over time. Our hypothesis is that both policies are imperfect substitutes in insuring consumption of risk-averse agents in incomplete markets. Exploiting data variation over time for 18 U.S. states for the period 1980-2003, we find considerable support for this hypothesis: redistributive taxation and bankruptcy exemptions are negatively correlated, and both policies are associated with more equal consumption growth.

Household Debt Repayment Behaviour: What Role Do Institutions Play?

“…They show that generous insurance regains the ability to improve welfare when default is prohibited, or that generous bankruptcy law can be an important barrier to the efficacy of social insurance policies. Similarly, Grant and Koeniger (2007), study the interaction between bankruptcy and labour market risks.…”

“…Accordingly, we believe that while there is some potential for cross-national legislation, as in the case of information sharing, credit market institutions and bankruptcy provisions should be allowed to differ across the EU based on the differences in available social insurance schemes. Grant and Koeniger (2007) shows how different US states have dramatically different rules about the assets that households can keep in bankruptcy, and also how they differ with respect to their social insurance schemes. Hence the exact nature of institutional arrangements will need to accommodate the specific needs of each country.…”

The effect of personal bankruptcy exemptions on investment in home equity

“…Grant and Koeniger (2009), in particular, find evidence that the variability of household consumption growth at the US state level is negatively related to the homestead exemption in the state, consistent with an insurance role for bankruptcy exemptions. In addition, Mahoney (2012) shows that higher exemptions reduce households' demand for health insurance, suggesting that the wealth insurance offered by exemptions reduces the need for explicit health insurance.…”

Household Debt and Credit: Economic Issues and Data Problems

“…In some countries, but not in others, final termination repayment to all lenders may result in personal bankruptcy or debt restructuring plans with partial discharge of outstanding debt. From a researcher's point of view these characteristics are important because personal bankruptcy, when legally allowed, can allow a household to buffer negative earnings or life‐history shocks (Grant and Koeniger, 2004). Also of considerable importance to lenders is the possibility of early repayment, such that no interest accrues (‘dormancy risk,’ see Carling et al , 2001).…”