Abstract
This paper aims to contribute to the growing empirical literature on the causes of consumer bankruptcy. The principal empirical finding is that cross-sectional variances of economic factors, such as unemployment, are strong predictors of bankruptcy rates. This supports anecdotal evidence that individuals are facing increased economic uncertainty. As a result, one can further see that uninsurable economic shocks are poorly characterized by local information, the standby for empirical analysis. We show in this paper that empirical analyses of the bankruptcy decision that include proxies for income risk find a large and statistically significant effect. Variation in permanent income can explain more than 90% of the time-series of bankruptcy rates. In the cross-section in 2007, a one standard deviation change in the variance of permanent income leads to an increase in annual bankruptcy rates of approximately 5 percentage points.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
