Working Paper: NBER ID: w17807
Authors: Tal Gross; Matthew J. Notowidigdo; Jialan Wang
Abstract: This paper estimates the extent to which legal fees prevent liquidity-constrained households from declaring bankruptcy. To do so, it studies 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 the rebates caused an increase in the average liabilities and the liabilities-to-income ratios of filers.
Keywords: liquidity constraints; consumer bankruptcy; tax rebates
JEL Codes: H31; K35
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 2001 and 2008 tax rebates (H20) | significant short-run increase in consumer bankruptcies (K35) |
| 2001 and 2008 tax rebates (H20) | increase in Chapter 7 filings (K35) |
| 2001 and 2008 tax rebates (H20) | households filing for bankruptcy months earlier (K35) |
| 2001 and 2008 tax rebates (H20) | households unable to afford bankruptcy without rebates (K35) |