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Project Citation: 

Livshits, Igor, MacGee, James, and Tertilt, Michèle. Replication data for: Consumer Bankruptcy: A Fresh Start. Nashville, TN: American Economic Association [publisher], 2007. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2019-12-07.

Project Description

Summary:  View help for Summary Consumer bankruptcy provides partial insurance against bad luck, but, by driving up interest rates, makes life-cycle smoothing more difficult. We argue that to assess this trade-off one needs a quantitative model of consumer bankruptcy with three key features: life-cycle component, idiosyncratic earnings uncertainty, and expense uncertainty (exogenous negative shocks to household balance sheets). We find that transitory and persistent earnings shocks have very different implications for evaluating bankruptcy rules. More persistent shocks make the bankruptcy option more desirable. Larger transitory shocks have the opposite effect. Our findings suggest the current US bankruptcy system may be desirable for reasonable parameter values. (JEL D14, D91, K35)

Scope of Project

JEL Classification:  View help for JEL Classification
      D14 Household Saving; Personal Finance

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