Liquidity Constraints and Consumer Bankruptcy: Evidence from Tax Rebates

Tal Gross; Matthew Notowidigdo; Jialan Wang

doi:10.1162/rest_a_00391

Liquidity Constraints and Consumer Bankruptcy: Evidence from Tax Rebates

Tal Gross^1,2; Matthew Notowidigdo^1,3; Jialan Wang⁴

¹ National Bureau of Economic Research · ² Columbia University · ³ University of Chicago · ⁴ Consumer Financial Protection Bureau

The Review of Economics and Statistics 2014 open access

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.

DOI: 10.1162/rest_a_00391
Volume: 96 (3)
Pages: 431-443
Language: en
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