Liquidity Constraints and Consumer Bankruptcy: Evidence from Tax Rebates

Tal Gross, Matthew Notowidigdo and Jialan Wang
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Jialan Wang: Consumer Financial Protection Bureau

The Review of Economics and Statistics, 2014, vol. 96, issue 3, 431-443

Abstract: We estimate the extent to which legal and administrative fees prevent liquidity-constrained households from declaring bankruptcy. To do so, we study how the 2001 and 2008 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 households that filed shortly after receiving their rebate checks had higher average liabilities and liabilities-to-income ratios. © 2014 The President and Fellows of Harvard College and the Massachusetts Institute of Technology

Keywords: tax rebates; consumer bankruptcy; liquidity constraints; liabilities (search for similar items in EconPapers)
JEL-codes: D14 G33 G38 K35 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (48)

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Working Paper: Liquidity Constraints and Consumer Bankruptcy: Evidence from Tax Rebates (2012)
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