Working Paper: CEPR ID: DP17117
Authors: Wenli Li; Costas Meghir; Florian Oswald
Abstract: We specify and estimate a lifecycle model of consumption, housing demandand labor supply in an environment where individuals may file forbankruptcy or default on their mortgage. Uncertainty in the modelis driven by house price shocks, {education specific} productivity shocks, and catastrophic consumption events, while bankruptcyis governed by the basic institutional framework in the US as impliedby Chapter 7 and Chapter 13. The model is estimated using micro dataon credit reports and mortgages combined with datafrom the American Community Survey. We use the model to understand the relative importance of the two chapters (7 and 13) for each of our two education groups that differ in both preferences and wage profiles. We also provide an evaluation of the BACPCA reform. Our paper demonstrates importance of distributional effects of Bankruptcy policy.
Keywords: No keywords provided
JEL Codes: G33; K35; J22; J31; D14; D18; D52; D53; E21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bankruptcy legislation (chapter 7 and chapter 13) (K35) | individual financial outcomes (D14) |
| chapter 7 filings (G33) | financial distress (G33) |
| lower educational attainment (I24) | likelihood of chapter 7 filings (K35) |
| bankruptcy system design (K35) | moral hazard (G52) |
| bankruptcy system design (K35) | financial difficulties among less educated individuals (I24) |
| bankruptcy policy changes (K35) | shifts in behavior across education groups (I24) |