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We specify and estimate a lifecycle model of consumption, housing demand and labor supply in an environment where individuals may file for bankruptcy or default on their mortgage. Uncertainty in the model is driven by house price shocks, education specific productivity shocks, and catastrophic consumption events, while bankruptcy is governed by the basic institutional framework in the US as implied by Chapter 7 and Chapter 13. The model is estimated using micro data on credit reports and mortgages combined with data from the American Community Survey. We use the model to understand the relative importance of the two chapters (7 and 13) for each of our two education groups that differ in both preferences and wage profiles. We also provide an evaluation of the BACPCA reform. Our paper demonstrates importance of distributional effects of Bankruptcy policy.
Authors

Research Fellow Yale University
Costas is a Research Fellow of the IFS and a Professor of Economics at Yale University and a Visiting Professor at University College London.

cemmap and Sciences Po
Florian is a PhD student with cemmap. His research interests include Applied Microeconomics, Housing and Urban Economics, Labor and Lifecycle Models.

Wenli Li
Working Paper details
- DOI
- 10.1920/wp.ifs.2022.1322
- Publisher
- Institute for Fiscal Studies
Suggested citation
W, Li and C, Meghir and F, Oswald. (2022). Consumer bankruptcy, mortgage default and labour supply. London: Institute for Fiscal Studies. Available at: https://ifs.org.uk/publications/consumer-bankruptcy-mortgage-default-and-labour-supply (accessed: 10 February 2025).
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