Liquidity constraints and consumer bankruptcy: Evidence from tax rebates

Tal Gross, Matthew J. Notowidigdo, Jialan Wang

Research output: Contribution to journalArticle

21 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)431-443
Number of pages13
JournalReview of Economics and Statistics
Volume96
Issue number3
DOIs
StatePublished - Jul 1 2014

ASJC Scopus subject areas

  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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