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.
Hintermaier, Thomas, and Winfried Koeniger.
"Debt Portfolios and Homestead Exemptions."
American Economic Journal: Macroeconomics,
Household Saving; Personal Finance
Intertemporal Household Choice; Life Cycle Models and Saving
Macroeconomics: Consumption; Saving; Wealth
Portfolio Choice; Investment Decisions
State and Local Taxation, Subsidies, and Revenue
Housing Supply and Markets