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Getting out of debt: Attachment of wage in whose interest?

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  • Christoph Zaborowski

    (Socioeconomic Institute, University of Zurich)

  • Peter Zweifel

    ()
    (Socioeconomic Institute, University of Zurich)

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    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.

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    File URL: http://www.soi.uzh.ch/research/wp/1997-2002/wp9802.pdf
    File Function: First version, 1998
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    Bibliographic Info

    Paper provided by Socioeconomic Institute - University of Zurich in its series SOI - Working Papers with number 9802.

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    Length: 27 pages
    Date of creation: Apr 1998
    Date of revision:
    Publication status: Published in European Journal of Law and Economics 8(3), 1999, pages 207-230
    Handle: RePEc:soz:wpaper:9802

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    Keywords: debt; insolvency; attachment of wage; subsistence level;

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