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Liquidity Constraints and Consumer Bankruptcy: Evidence from Tax Rebates

Author

Listed:
  • Tal Gross

    (Mailman School of Public Health, Columbia University and NBER)

  • Matthew J. Notowidigdo

    (University of Chicago Booth School of Business and NBER)

  • Jialan Wang

    (Consumer Financial Protection Bureau)

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

Suggested Citation

  • Tal Gross & Matthew J. Notowidigdo & Jialan Wang, 2014. "Liquidity Constraints and Consumer Bankruptcy: Evidence from Tax Rebates," The Review of Economics and Statistics, MIT Press, vol. 96(3), pages 431-443, July.
    • Handle: RePEc:tpr:restat:v:96:y:2014:i:3:p:431-443
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    More about this item

    Keywords

    tax rebates; consumer bankruptcy; liquidity constraints; liabilities;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law

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