Title: Fresh start or head start? the effect of filing for personal bankruptcy on the labor supply
Description: "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.  We find that filing for bankruptcy does not  have a positive impact on annual hours worked by bankrupt households, a result  mainly due to the wealth effects of debt discharge.  The finding is robust to a  number of alternative model specifications and sample selections.  Therefore,  our analysis does not find supporting evidence for the human capital argument  for bankruptcy discharge"--Federal Reserve Bank of Philadelphia web site.
Subjects: Bankruptcy
Places: United States