Debtor protection, credit redistribution and income inequality

Hamid Boustanifar, G.M. Cerqueiro, M.F. Penas

Research output: Working paperDiscussion paperOther research output

Abstract

A debtor-friendly personal bankruptcy regime reallocates credit by reducing its availability, particularly for low-asset individuals. We show that increasing the amount of asset protection in bankruptcy leads to higher income inequality. The rise in inequality is amplified in industries with high credit needs and is triggered by an increased income gap among self-employed individuals. We also find an increase in income inequality among salaried workers, which is explained by a drop in the wages and working hours of unskilled workers. Debtor protection thus creates an imbalance in economic opportunities among business owners that reduces the aggregate demand for unskilled labor.
Original languageEnglish
Number of pages69
Publication statusPublished - 1 Oct 2015
Externally publishedYes

Publication series

NameTILEC Discussion Paper
Volume2015-012

Keywords

  • debtor protection
  • income inequality
  • credit markets

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  • Cite this

    Boustanifar, H., Cerqueiro, G. M., & Penas, M. F. (2015). Debtor protection, credit redistribution and income inequality. (TILEC Discussion Paper; Vol. 2015-012). https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2576039##