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An anatomy of U.S. personal bankruptcy under Chapter 13
We build a structural model of Chapter 13 bankruptcy that captures salient features of personal bankruptcy under Chapter 13. We estimate our model using a novel data set that we construct from bankruptcy court dockets recorded in Delaware in 2001 and 2002. Our estimation results highlight the importance of debtor?s choice of repayment plan length for Chapter 13 outcomes under the restrictions imposed by the bankruptcy law. We use the estimated model to conduct policy experiments to evaluate the impact of more stringent provisions of Chapter 13 that impose additional restrictions on the length ...
Working Paper
Growth effects of progressive taxes
Criticisms of endogenous growth models with flat rate taxes have highlighted two features that are not substantiated by the data. These models generally imply: (1) that economic growth must fall with the share of government expenditures in output across countries, and (2) that one-time shifts in marginal tax rates should instantaneously lead to similar shifts in output growth. In contrast, we show that allowing for heterogeneous households and progressive taxes into otherwise conventional linear growth models radically changes these predictions. In particular, economic growth does not have to ...
Working Paper
Growth Effects of Progressive Taxation
Criticisms of endogenous growth models with flat rate taxes have highlighted two features that are not substantiated by the data. These models generally imply: (1) that economic growth must fall with the share of government expenditures in output across countries, and (2) that one-time shifts in marginal tax rates should instantaneously lead to similar shifts in output growth. In contrast, we show that allowing for heterogenous households and progressive taxes into otherwise conventional linear growth models radically changes these predictions. In particular, economic growth does not have to ...
Working Paper
The Dynamics of Adjustable-Rate Subprime Mortgage Default: A Structural Estimation
We present a dynamic structural model of subprime adjustable-rate mortgage (ARM) borrowers making payment decisions taking into account possible consequences of different degrees of delinquency from their lenders. We empirically implement the model using unique data sets that contain information on borrowers' mortgage payment history, their broad balance sheets, and lender responses. Our investigation of the factors that drive borrowers' decisions reveals that subprime ARMs are not all alike. For loans originated in 2004 and 2005, the interest rate resets associated with ARMs, as well as the ...
Working Paper
Fresh start or head start? The effect of filing for personal bankruptcy on the labor supply
The key feature of the modern U.S. personal bankruptcy law is to provide debtors a financial fresh start through debt discharge. The primary justification for the discharge policy is to preserve human capital by maintaining incentives for work. In this paper, we test this fresh start argument by providing the first estimate of the effect of personal bankruptcy filing on the labor supply using data from the Panel Study of Income Dynamics (PSID). Our econometric approach controls for the endogenous self-selection of bankruptcy filing and allows for dependence over time for the same household. ...
Working Paper
Recourse and residential mortgages: the case of Nevada
The state of Nevada passed legislation in 2009 that abolished deficiency judgments for purchase mortgage loans made after October 1, 2009, and collateralized by primary single-family homes. In this paper, we study how the law change affected lenders? decisions to grant mortgages and borrowers? decisions to apply for them and subsequently default. Using unique mortgage loan-level application and performance data, we find strong evidence that lenders tightened their lending standards for mortgages affected by the new legislation. In particular, lenders reduced approval rates and loan sizes for ...
Working Paper
The macroeconomics of U.S. consumer bankruptcy choice : chapter 7 or chapter 13?
Because of the recent surge in U.S. personal defaults, Congress is currently debating bankruptcy reform legislation requiring a means test for Chapter 7 filers. This paper explores the effects of such a reform in a model where, in contrast to previous work, bankruptcy options and production are explicitly taken into account. Our findings indicate that means testing would not improve upon current bankruptcy provisions and, at best, leaves aggregate filings, output, and welfare unchanged. Put simply,given already existing provisions, the introduction of an efficient means test would not bind. ...
Working Paper
Investigating fluctuations in U.S. manufacturing : what are the direct effects of informational frictions?
In this paper, we explore how informational frictions in credit markets directly affect U.S. manufacturing fluctuations. Within the context of a dynamic industry model, we propose a strategy for identifying intermediation costs related to informational asymmetries between lenders and borrowers. The analysis suggests that these costs have been steadily falling over the post-war period. We also present evidence that changes in the cost of intermediation should directly affect output, as opposed to just propagating the effects of other shocks. Finally, we find that the relative share of output ...
Working Paper
Entrepreneurship and government subsidies under capital constraints: a general equilibrium analysis
This paper studies the interaction of capital constraints with business formation, growth and destruction, and the policy implications of this interaction. A dynamic general equilibrium model is constructed and shown to be consistent with recent empirical finding on this subject. In the model, agents face uninsurable income risk and costly financial intermediation, and they choose to be either a worker or an entrepreneur. A calibrated version of the model is used to examine two government assistance programs: loan guarantees and grants. The main findings are that both programs can improve ...
Working Paper
Growth effects of progressive taxes
Criticisms of endogenous growth models with flat rate taxes have highlighted two features that are not substantiated by the data. These models generally imply: (1) that economic growth must fall with the share of government expenditures in output across countries, and (2) that one-time shifts in marginal tax rates should instantaneously lead to similar shifts in output growth. In contrast, we show that allowing for heterogeneous households and progressive taxes into otherwise conventional linear growth models radically changes these predictions. In particular, economic growth does not have to ...