Consumer debt and default

Exler, Florian

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URN: urn:nbn:de:bsz:180-madoc-431863
Document Type: Doctoral dissertation
Year of publication: 2017
Place of publication: Mannheim
University: Universität Mannheim
Evaluator: Tertilt, Michèle
Date of oral examination: 8 August 2017
Publication language: English
Institution: School of Law and Economics > VWL, Makroökonomik (Juniorprofessur) (Lee 2011-2016)
School of Law and Economics > Makro- u. Entwicklungsökonomie (Tertilt 2010-)
Außerfakultäre Einrichtungen > Graduate School of Economic and Social Sciences - CDSE (Economics)
Subject: 330 Economics
Classification: JEL: E21, E43, E44, K35,
Subject headings (SWD): Konsumentenkredit , Insolvenz , Schuldenerlass
Keywords (English): Unsecured Debt , Personal Bankruptcy , Delinquency , Default , Garnishment
Abstract: This dissertation comprises three self-contained essays in which I analyze the effects of consumer bankruptcy laws on household borrowing, interest rates, default decisions, and welfare in different institutional settings. Chapter 2 analyzes whether and how to regulate small dollar lending in the U.S. I show that lump-sum court filing fees prevent low-income households from filing for bankruptcy, causing them to become delinquent. In a policy experiment, I show that easier access to bankruptcy increases welfare of this group by 1%. Chapter 3 evaluates the German bankruptcy system, which features relatively harsh wage garnishment. Since wage garnishment raises the effective marginal tax rate, it exhibits adverse effects on labor supply. Explicitly modeling labor supply, this paper documents the optimal garnishment regime for the German economy: garnishment rates are reduced by more than 25%, while the duration of garnishment is increased from six to ten years. This results in an aggregate welfare increase of around 3.3%. Chapter 4 is joint work with Igor Livshits, James MacGee, and Michèle Tertilt. There is increased debate over whether the regulation of unsecured consumer lending products is required to protect some consumers from “over-borrowing.” To assess the quantitative benefits of regulating the cost of declaring consumer bankruptcy, we analyze a life-cycle model where some consumers have excessively optimistic beliefs about their exposure to unforeseen expenses.

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