Abstract
Lessons learned in the aftermath of the Financial Crisis of 2008 include that long, punitive household insolvency regimes have a negative societal impact, increase the potential for financial instability and hamper national economic recovery. We propose the Socio-Economic Framework for Household Insolvency System Design as a regulatory mechanism that aims to control national household debt and productivity levels. The system facilitates an informal resolution of the conflict between over-indebted households and their creditors. When this is not possible, the system grants immediate relief to no-income, no-assets and ‘honest’ households, that experienced over-indebtedness because of an external negative shock, such as a medical emergency. Finally, when the household does not qualify for immediate relief, the system allocates the costs of insolvency between the household and creditors, based on responsibility for the over-indebtedness. This reduces the moral hazard.
Original language | English |
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Pages (from-to) | 1473-1499 |
Number of pages | 27 |
Journal | Socio-Economic Review |
Volume | 21 |
Issue number | 3 |
Early online date | 23 Mar 2023 |
DOIs | |
Publication status | Published online - 23 Mar 2023 |
Bibliographical note
Publisher Copyright:© 2023 The Author(s). Published by Oxford University Press and the Society for the Advancement of Socio-Economics.
Keywords
- household debt
- social policy
- welfare state
- financializaton
- H31 Fiscal Policies and Behavior of Economic Agents: Household
- K35 Personal Bankruptcy Law
- I38 Government Policy: Provision and Effects of Welfare Programs