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Getting Out of Debt: Attachment of wage in whose interest?


Zaborowski, Christoph; Zweifel, Peter (1998). Getting Out of Debt: Attachment of wage in whose interest? Working paper series / Socioeconomic Institute No. 9802, University of Zurich.

Abstract

Attachment of wage as a way for creditors to enforce payment by unwilling or insolvent debtors is not very successful in several countries. Based on a dynamic model of debtor behaviour, this paper explores two alternatives of reform. One is to reduce the rate of attachment, which at present amounts to 100 percent of the wage income exceeding the subsistence level, thus probably destroying incentives to work. According to model simulations, reducing the attachment rate is likely to result in an increase of labour supply but a decrease of attachment revenue per period. Second, the introduction of a debt release would have an ambiguous effect on labour supply. While resulting in a partial loss for creditors, it would permit debtors to get out of debt. A Pareto improvement thus does not seem to be possible. When taking the taxpayers as an involved third party into account, however, a potential Pareto improvement appears attainable.

Attachment of wage as a way for creditors to enforce payment by unwilling or insolvent debtors is not very successful in several countries. Based on a dynamic model of debtor behaviour, this paper explores two alternatives of reform. One is to reduce the rate of attachment, which at present amounts to 100 percent of the wage income exceeding the subsistence level, thus probably destroying incentives to work. According to model simulations, reducing the attachment rate is likely to result in an increase of labour supply but a decrease of attachment revenue per period. Second, the introduction of a debt release would have an ambiguous effect on labour supply. While resulting in a partial loss for creditors, it would permit debtors to get out of debt. A Pareto improvement thus does not seem to be possible. When taking the taxpayers as an involved third party into account, however, a potential Pareto improvement appears attainable.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Socioeconomic Institute (former)
Dewey Decimal Classification:330 Economics
JEL Classification:D91, J22, K29
Language:English
Date:April 1998
Deposited On:29 Nov 2011 19:45
Last Modified:05 Apr 2016 15:09
Series Name:Working paper series / Socioeconomic Institute
Official URL:http://www.econ.uzh.ch/wp.html
Permanent URL: https://doi.org/10.5167/uzh-51847

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