Targeted business incentives and the debt behavior of households

The empirical effects of place-based tax incentive schemes designed to aid low-income communities are unclear. While a growing number of studies find beneficial effects on employment, there is little investigation into other behaviors of households affected by such programs. We analyze the impact of the Texas Enterprise Zone Program on household debt and delinquency. Specifically, we utilize detailed information on all household liabilities, delinquencies, and credit scores from the Federal Reserve Bank of New York Consumer Credit Panel/Equifax, a quarterly longitudinal 5% random sample of all individuals in the USA with a social security number and a credit report. We identify the causal effect of the program by using a sharp regression discontinuity approach that exploits the known institutional rules of the program. We find a modest positive impact on the repayment of retail loans, but also evidence of an increase in the delinquency rates of auto loans and in Chapter 13 bankruptcy filings.     

Length of time spent in Chapter 11 bankruptcy: a censored partial regression model

This paper investigates original issuers of high yield bonds in Chapter 11 bankruptcy to determine which factors affect the length of time spent in Chapter 11. In order to do this analysis a flexible new duration model is proposed, the censored partial regression model. This model allows consideration of the effect of some variables on the duration using a nonparametric functional form. It is found that the choice of prepackaged Chapter 11, the length of time negotiating before filling for Chapter 11, the profitability, the highly leveraged transactions, the participation on different disputes, the role of vulture funds and some institutional changes turn out to be relevant to analyse this duration.     

Periodicals Received

Chapter 7 is designed for debtors who do not have the ability to pay their existing debts and many times leads to a legal release of most debt. Chapter 13 is designed for debtors who have the ability to pay all or part of their debts in installments over a period of time. Bankruptcy research finds that the southern region of the USA has a significantly higher portion of Chapter 13 filings than the rest of the country, unexplainable by quantifiable demographic, legal, or economic differences. Our results suggest that religion is the driving force behind the abnormally high Chapter 13 filings in the southern USA.     

The impact of mobile financial services’ usage on microfinance delinquency

This paper studies the impact of Mobile Financial Systems’ usage on microcredit delinquency ratios in Tunisia by using either a two-part model or matching econometric procedures. Our large dataset contains all of the administrative registers that belong to the six branches of Enda, the incumbent Institution leader in Tunisia. We find a significant reduction of 4.92 days of late repayment for an average user of MFS in an environment where 15% of loans have been paid late at least once. We foresee a tremendous opportunity to improve the MFIs’ repayment ratios and, consequently, provide microcredit customers with more financing for income generating activities.     

论产出分布对团体贷款还款率的影响

关于团体贷款的现有研究对于还款率在时间上和空间上的差异还不能够给出有说服力的解释。通过构造一个产出信息不对称下的五人还款博弈模型 ,我们从产出在成员之间的分布的角度解释这种差异。我们的模型表明了产出在成员间的分布状况可以成为导致这种差异的重要力量 ,同时也加深了我们对团体贷款还款阶段各种影响因素的理解     

Loan officer gender and loan repayment performance. Evidence from greenfield microfinance institutions in Cameroon1

We explore whether loan officer gender affects loan repayment performance in Cameroonian microfinance institutions (MFIs). After controlling for demand-side factors (borrower characteristics), lending methodology, loan contract terms, year, and industry fixed effects, we apply a pooled probit model to a unique loan-level dataset including more than 7000 loans approved between 2007 and 2012 by two Cameroonian commercial MFIs. We find that loans granted and monitored by male loan officers perform better than those granted by female officers and that loans approved under joint liability contracts and monitored by male loan officers are less likely to fall into arrears. Our findings also show that the performance advantage of male loan officers over female officers is confirmed only during bad times. Compared to female loan officers, male loan officers seem to intensify their monitoring efforts during a crisis period. The results are robust after controlling for selection bias and are less sensitive to a change in the loan repayment performance measurement.     

On the welfare implications of restricting bankruptcy information

The Fair Credit Reporting Act (FCRA) dictates that adverse events such as a Chapter 7 bankruptcy filing must be removed from an individual’s credit record after 10 years. The intent of the law is to provide partial consumption insurance by giving an individual a fresh start. However, the law obviously weakens incentives not to default, which can result in higher interest rates that in turn reduce intertemporal insurance. Because of this tradeoff, it is unclear how long is the optimal length of time that an adverse event remains on an individual’s credit record. In this paper we assess the welfare consequences of varying the length of time that adverse events can be on one’s credit record. We calibrate the model to US data where the exclusion parameter is set to be 10 years on average. Then we run a counterfactual to find the length that maximizes ex-post economywide welfare using a consumption equivalent measure. The model predicts agents prefer to remove the bankruptcy flag after one year, though the gains are small.     

CONSUMER BANKRUPTCY AND CHAPTER CHOICE: STATE PANEL EVIDENCE

Between 1985 and 1996, the number of personal bankruptcy cases filed annually in the United States rose from 341,000 to 1.1 million, and the rate of bankruptcies per 100,000 adults increased from 203 to 596. By state, bankruptcy rates vary from a low of 147 in Hawaii to a high of 956 in Tennessee. A controversial aspect of bankruptcy policy is the discharge of debts permitted under Chapter 7, in contrast to Chapter 13, where the debtor agrees to repay all or a portion of unsecured debt over a 3-5-year period. This paper examines empirically the determinants of the frequency with which individuals choose Chapter 13 relative to Chapter 7 (chapter choice). The panel data set is a cross section of states and the District of Columbia for the 8-year period from fiscal year 1989 to 1996. The empirical model and policy application focus on the importance of several laws for bankruptcy decisions, and legal variables are included for each state's Chapter 7 homestead exemption, personal property exemptions, and garnishment laws. This study shows that both homestead exemption laws and garnishment laws are statistically significant for bankruptcy choices. Although the marginal effect of the homestead exemption is small, there is a large range under current laws, suggesting that changes in this exemption are important for bankruptcy policy. ( JEL K1, K4, D2, D9)     

The dynamics of retirement saving — theory and reality

Pension problems and reforms are in the foreground of public interest and political action in many countries, yet economic theory offers inadequate support for finding viable solutions, because it is heavily loaded with simplifying concepts and unrealistic assumptions. These concepts and assumptions are briefly summarized in Chapter 1, while a generalized framework based on them is presented in Chapter 2. The basic stationary assumption is then relaxed in Chapter 3 what results in the conclusion that a profound, not just technical, but conceptual innovation is required. Chapter 4 outlines a few major issues and concepts for a more realistic pension economics. A summary is given in Chapter 5.     

INTEREST RATES IN GROUP LENDING: A BEHAVIOURAL INVESTIGATION

Abstract.  Microfinance institutions (MFIs) serve more than 5 million households in developing countries. A crucial variable for MFI schemes is the interest rate to be charged from borrowers. This paper studies the behavioural impacts of the repayment burden on repayment performance. In a laboratory experiment, we vary the amount a borrower group has to repay and study how this affects free-riding behaviour. We can identify two counteracting effects: a higher repayment burden intensifies the incentives to free-ride as shirking saves more money. On the other hand, high-interest loans are less tolerant towards defaulters, which exerts a disciplining effect.     

‘An Incomplete Contract Approach to Eurozone Fiscal Governance’ – Commitment vs. Flexibility

In this paper, we take an incomplete contract approach to Eurozone Fiscal Governance between the European Commission (EC) and any heavily debt member state, Greece in particular. Incomplete contract approach makes possible to put a long process of Eurozone Fiscal Governance into an extensive form game in which a renegotiation procedure is incorporated. We theoretically reveal the conflict of interests between the EC (Germany) and Greece over the Greek debt repayment plan proposed in 2015. We show that the Greek’s position is consistent with incomplete contract theory, but that the EC (Germany) does not allow the renegotiation for restructuring for growth-oriented debt repayment program proposed by the Greek government because the EC (Germany) judges that the commitment effect (on fiscal austerity) is greater than the flexibility one (pro-growth effect). This will undoubtedly provide a novel and interesting approach to Eurozone Fiscal Governance.     

Joint estimation of discount rates and willingness to pay for public goods

We analyze willingness to pay (WTP) for environmental programs whose time periods of benefit and repayment differ, using a net present value framework that identifies parameters of both WTP and personal discount rates. Respondents to a contingent valuation survey focusing on protection of critical habitat buffer zones for the endangered Steller Sea Lion in Alaska were asked their willingness to pay for 1-, 5-, and 15-year repayment periods. We jointly estimate the personal discount rates and WTP via maximum likelihood, and compare with a model assuming a fixed, market discount rate.     

When do more selfish politicians manipulate less,not more?

We model the political manipulation of deficits in a political budget cycle model. Assuming that a share of voters suffers from debt illusion the incumbent can increase her re-election chances by expanding government spending. However, the optimal manipulation may exceed the amount necessary to maximize re-election chances (over-manipulation) if the deficit is not very costly (low repayment obligation). Then, more selfish politicians (higher ego rents and, therefore, increased re-election motivation) reduce the over-manipulation. Conversely, “excessive” spending may wrongly be interpreted as opportunistic government manipulation. Theoretical results are supported empirically, with very robust evidence in a sample of 87 democracies.     

When is the optimal lending contract in microfinance state non-contingent?

Whether a microfinance institution should use a state-contingent repayment or not is very important since a state-contingent loan can provide insurance for borrowers. However, the classic Grameen bank used state non-contingent repayment, which is puzzling since it forces poor borrowers to make their payments even under hard circumstances. This paper provides an explanation to this puzzle. We consider two modes of lending, group and individual lending, and for each mode we characterize the optimal lending and supervisory contracts when a staff member (a supervisor) can embezzle borrowers’ repayments by misrepresenting realized returns. We identify the main trade-off between the insurance gain and the cost of controlling the supervisor's misbehavior. We also find that group lending dominates individual lending either by providing more insurance or by saving audit costs.     

Are debt repayment incentives undermined by foreign aid?

This paper investigates the effects of inflows of foreign aid on the debt repayment behavior of developing countries. The paper first delineates the overall incentives to committing to timely debt repayment in a war of attrition-type model. A set of panel estimates including 93 developing countries shows that foreign aid is strongly negatively associated with repayment incentives. The findings pertain to both total debt service and service on publically guaranteed debt. A set of conditional estimates suggest that the main findings generalize to the majority of developing countries.     

Reform State Taxes to Increase Productivity

A larger and more productive economy would facilitate the reduction of COVID-19 government deficits and their future repayment. Reform of state taxes is among the low-hanging fruit to include in a broad supply-side agenda to increase national productivity. Approximate aggregate revenue neutral reform packages to reduce tax distortions and improve productivity are discussed for state taxes on property, payroll and motor vehicles.     

State restrictions on local debt: Their role in preventing default

Default by a local government can impose a negative externality upon other localities within a state because the state's ability to enforce debt repayment depends upon the proportion of municipalities favoring repayment. Localities benefit from maintaining their state's reputation for enforcement. Hence, jurisdictions not wishing to default favor enforcement of repayment by other jurisdictions. A debt limit increases support for enforcement by reducing the proportion of municipalities preferring default. We characterize when such a limit is optimal. We also examine the role of ‘special districts’, which typically neither are subject to a debt ceiling nor fully backed by the jurisdiction.     

Reorganization strategies and securities valuation under asymmetric information

This paper examines optimal reorganization strategies during financial distress and securities valuation under asymmetric information. We model strategic interactions between debtholders and equityholders in a game-theoretic setting that can accommodate the varying bargaining powers of the two claimants. Two reorganization strategies are considered: Chapter 11 (debt–equity swap) and private workout (strategic debt service). Using Chapter 11 as a costly state verification device, we characterize in equilibrium which firms choose Chapter 11 and which choose private workout. In particular, we show how the bank's belief about the type of firm evolves by observation of reorganization strategies. We also derive closed-form solutions to both the equity and debt valuation problems under asymmetric information and show that credit spreads increase with the degrees of asymmetric information.     

Determinants of microcredit repayment in Portugal: analysis of borrowers,loans and business projects

Microcredit programs in Portugal represent a unique case for studying the microcredit repayment determinants in a developed country, as it experienced a financial hardship in 2008–2009, with economic and social consequences that led to unemployment crisis. This research examined the determinants of microcredit loan repayment based on a sample of 752 microcredit loans granted in Portugal by the National Association for the Right to Credit, adopting individual lending mechanisms and granting loans through partnerships with several credit institutions. This is the first study to ascertain the influence that a set of factors – grouped into three categories: borrowers’ individual characteristics; loan characteristics; and characteristics of business projects implemented by borrowers – has on the repayment ability of microcredit programs, in a developed country of the Eurozone. Moreover, this is the first study using an ordered logistic regression (OLR) in estimating the determinants of microcredit loan repayment. Similar to previous studies, married borrowers tend to repay loans faster as they tend to be more responsible than single borrowers. Nationality seems to be an issue as foreigners tends to default the repayment loans. Finally, those involved in manufacturing activities perform better than those involved in service activities in repaying their loans. This clearly indicates that in developed countries special attention needs to be provided to minority groups as well as market/supply conditions, which are not normally considered in less favored economic countries.     

Has Anything Changed in the Past Century? Revisiting Graue's "The Social Cost of Bad Debt"

In a seminal paper, Erwin Graue (1939) provides an institutional analysis of the causes and consequences of personal bankruptcy protection in the United States during the period 1900-1937 when bankruptcy procedures were guided by the Federal Bankruptcy Act of 1898 (the Law was revised in 1938). This paper revisits the Graue study in the context of the current recession using a simple institutional economic framework. Consistent with Graue, we begin shortly after the implementation of the Bankruptcy Abuse Protection and Consumer Protection Act of 2005 (BAPCPA) and follow its evolution to the present time. Our analysis suggests that, since passage of BAPCPA, both total filings and Chapter 7 filings decreased significantly, however temporarily. Moreover, Chapter 7 filings as a percentage of Chapter 13 filings also temporarily decreased. These results are not only consistent with Graue's analysis, but also demonstrate that the institutional characteristics of bankruptcy law have a profound impact on the decision to file for bankruptcy and the chapter under which a petitioner files.