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

Author

Listed:
  • Christoph Zaborowski

    (Socioeconomic Institute, University of Zurich)

  • Peter Zweifel

    (Socioeconomic Institute, 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.

Suggested Citation

  • Christoph Zaborowski & Peter Zweifel, 1998. "Getting out of debt: Attachment of wage in whose interest?," SOI - Working Papers 9802, Socioeconomic Institute - University of Zurich.
    • Handle: RePEc:soz:wpaper:9802
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    File URL: https://www.zora.uzh.ch/id/eprint/51847/1/wp9802.pdf
    File Function: First version, 1998
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    More about this item

    Keywords

    debt; insolvency; attachment of wage; subsistence level;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • K29 - Law and Economics - - Regulation and Business Law - - - Other

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