About the paper

The Centre for Economic Policy Research (CEPR) was founded in 1983 to promote and disseminate economic research in both the public and private sectors. The organisation is non-profit and independent.

In the paper ”Leaving your past behind: Debt relief and examiner instrumental variables”, Jakob Beuschlein examines the effects of the Swedish debt restructuring programme on labor market outcomes.

Jakob Beuschlein is a sixth-year PhD student at the Department of Economics, Stockholm University.

Paper abstract

Many countries provide debt relief programs for over-indebted individuals. I use an examiner leniency design to estimate the effects of the Swedish debt restructuring program on subsequent labor market outcomes. I find that participation in the program has, on average, negative effects on earnings and employment. These findings mask large heterogeneity. While accepted high-income applicants experience increases in income and employment, low-income households face substantial negative effects that persist even after the program ends. The combination of high adjustment rates in the repayment plans for participants and wage garnishment for rejected applicants can explain these disparities.

I calibrate a labor supply model and show that modest changes in the structure of the repayment plan can improve welfare for both debtors and creditors. Another contribution of this paper is to show that if there is path dependency in examiners’ decision-making, classical examiner instrumental variables (IV) based on leave-one-out estimates of examiner leniency will be biased. I report substantial biases relative to the OLS bias in the setting of the Swedish debt restructuring program. Instead, I propose a past-cases-only estimator that is robust to path-dependent decision-making.