new insights in the determinants of regional variation in bankruptcy filing rates kelly d. edmiston...
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New Insights in the Determinants of Regional Variation in Bankruptcy Filing
Rates
Kelly D. EdmistonSenior Economist, FRB Kansas City
North American Meetings, RSAINovember 10, 2005
Las Vegas, NV
Personal Bankruptcies in the U.S.
0.0
10.0
20.0
30.0
40.0
50.0
60.0
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Year
Ban
kru
ptc
ies/
10,0
00 A
mer
ican
s
Treasury (1999)
Administrative Office of the U.S.Courts
Bankruptcy Filing Rates by County, U.S., 2000
November 10, 2005 K. Edmiston, Federal Reserve Bank of Kansas City 4
Focus
homestead exemptions social stigma legal gambling wage garnishment
November 10, 2005 K. Edmiston, Federal Reserve Bank of Kansas City 5
Homestead Exemptions
V – EH allocated to unsecured debts
• foreclosure
Protection is afforded to all types of assets Offers consumption insurance / lowers
bankruptcy filing costs
November 10, 2005 K. Edmiston, Federal Reserve Bank of Kansas City 6
Some high asset individuals move to high exemption states to convert assets
Exemptions that are both higher and lower than federal lead to more bankruptcies
Effect on bankruptcies is negative Effect on bankruptcies is positive Positive for 7 filings and negative for 13
filings
Homestead Exemptions: Empirical Evidence
November 10, 2005 K. Edmiston, Federal Reserve Bank of Kansas City 7
Two approaches to measuring the effect of homestead exemptions
)649.0(119.0H
b
(1) Least Squares with White’s (1980) Correction:
(2) Two-Stage Model to Account of Endogeneity
*)765.1(680.0H
b
Stage 1
Table 3: Results, Homestead Exemptions
VariableParameter Value
(t-statistic)Variable
Parameter Value(t-statistic)
Intercept- 7,796,626*
(- 1.733)Percent White
- 5,853*
(- 1.844)
Poverty Rate- 140,452***
(- 2.891)Average Family Size
1,770,668***
(3.045)
Median House Value- 8.062***
(- 3.059)Household Median Income
- 32.52*
(- 1.905)
Wage Not Subject to Garnishment- 4,577**
(- 2.166)Households with Public Assistance
- 238,177**
(- 2.644)
Percent of Population that is Male122,891*
(1.811)Owner-Occupany Rate
- 21,184*
(- 1.954)
Median Age76,621***
(2.813)Percent GOP
- 14,540(- 1.406)
Adjusted R2 0.2063 No. Observations 51
***, **, and * indicates statistical significance at the 1, 5, and 10 percent levels, respectively.
uH
Z
;Hb X
K ~,,
~,
~2 1
ˆ~ˆ~1~
1 k
K
k kKVOC
Stage 2
Bootstrapping
Estimate by least squares:
Generate:
Sample: n observations from X, with replacement
KkHb kkkk ,,1;ˆ XEstimate:
Evaluate:
November 10, 2005 K. Edmiston, Federal Reserve Bank of Kansas City 10
Social Stigma
Previous approaches• age (and age squared)
• geography (own state for individual) Innovations on previous approaches
• entire age distribution
• LS with regional dummies and SAR New approach
• religious adherence
Age Distribution 1
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
Sh
are
of F
Ilin
gs
< 25 25-34 35-44 45-54 55-64 > 65
Age Group
1991 2001
Source: Consumer Bankruptcy Project, as cited in Suein Hwang, "Mr. Hester Takes a Mall Job," The Wall Street Journal, August 6, 2004.
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
< 15
15 -
19
20 -
24
25 -
34
35 -
44
45 -
54
55 -
59
60 -
64
65 -
74
75 -
84
> 84
Age Range
Coe
ffic
ien
t V
alu
e
**
*
* indicates statistical significance at 90% confidence level or better
Age Distribution 2
Estimation of Geographic Factors and Results
RX Hb ˆ
bHb WX ˆ
***3943.6)0(
F
Least Squares with Regional Dummy Variables
SAR
***)92.18(528.0ˆ
Religious Adherence
ReligionParameter
(t-statistic)Religion
Parameter
(t-statistic)
Christian – Catholic
0.019
(0.260)Judaism
1.976**
(2.527)
Christian – Protestant
0.141**
(2.038)Eastern Religions
- 13.72***
(- 3.498)
Christian – Orthodox
0.500
(0.356)Islam
- 4.809**
(- 2.564)
Christian – LDS
0.129
(0.972)Unitarian Universalist
- 38.42***
(- 4.231)
Wage Garnishment
***)200.12(038.1 WP
Gambling in the United States, 2000
Gambling Results
VariableParameter Value
(t-statistic)
Minimum Distance to a Casino
- 0.043***
(- 5.777)
Lottery- 2.814
(- 1.195)
Card Rooms10.78***
(2.616)
Race Tracks- 13.67***
(- 4.835)
Kelly D. EdmistonSenior Economist
Community Affairs DepartmentFederal Reserve Bank of Kansas City
925 Grand BoulevardKansas City, MO 64198-0001
Tel: (816) 881-2004Fax: (816) 881-2704
E-Mail: [email protected]