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  3. American Economic Journal: Macroeconomics
  4. October 2016
  5. Debt Portfolios and Homestead Exemptions

Debt Portfolios and Homestead Exemptions

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Abstract

This paper investigates the economic relevance of the large differences in homestead exemptions across US states. We build a structural model for an equilibrium analysis of debt-portfolio choices over the life cycle. Our analysis captures key patterns from the observed cross-sectional distributions of secured debt, unsecured debt, and of home equity. The model predicts that harmonizing the amount of home equity exempt in bankruptcy procedures has quantitatively negligible effects on the interest rate of unsecured debt and on welfare, unless the exemption is eliminated. The small welfare effect may rationalize why the differences in homestead exemptions are so persistent.

Citation

Hintermaier, Thomas, and Winfried Koeniger. 2016. "Debt Portfolios and Homestead Exemptions." American Economic Journal: Macroeconomics, 8 (4): 103-41. DOI: 10.1257/mac.20120151

Additional Materials

JEL Classification

  • D14 Household Saving; Personal Finance
  • D15 Intertemporal Household Choice; Life Cycle Models and Saving
  • E21 Macroeconomics: Consumption; Saving; Wealth
  • G11 Portfolio Choice; Investment Decisions
  • H71 State and Local Taxation, Subsidies, and Revenue
  • R31 Housing Supply and Markets
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