Household bankruptcy filings have been increasing in the US for the past quarter of a century. In 1984, 0.33% of American households filed for bankruptcy. The number of filers rose to 0.93% of households in 1991 and continued to increase up to 1.41% in 2004. This trend can also be spotted in the number of Canadian bankruptcy filers (Livshits et al. (2005)), suggesting that the increase should not be solely attributed to legal changes in the US.
During this period, households’ access to unsecured credit (mainly through credit cards) flourished. While in 1989, 56% of households had access to credit cards and 29% of households carried a positive balance on their accounts. Fifteen years later credit card access rose to 72% and 40% of American households were carrying debt on their accounts (the latter are called revolvers in the literature). Moreover, the average credit card debt of revolvers increased from $1, 830 in 1989 to $3, 300 in 2004. But households were not just borrowing more subject to the same credit limits. During this period the average credit card limit available for an American household more than doubled; they rose from $7, 100 in 1989 to $15, 200 in 2004.
On January 1, 2006, the Connecticut General Assembly enacted an aggressive film production tax credit (defined in Sec. 12-217jj of the Connecticut General Statutes) intending to attract a larger segment of the lucrative film industry into the state. The immediate result of this act is transparent, as Connecticut has experienced a dramatic increase in film production since the law’s enactment. The economic ramifications of this act, however, are less straightforward. In granting a tax credit to the film industry, the state effectively reduces the tax revenue it would otherwise receive from increased film production in the state that presumably would not occur without the credit.
The result of this temporary sacrifice of tax revenue is a flurry of direct and indirect economic activity that stimulates Connecticut’s economy, which one hopes more than offsets the direct reduction in tax revenue and its indirect effects. The increase in economic activity provides a wide range of economic benefits including increased output (sales) for local businesses, new jobs, as well as subsequent increases in sales and personal income tax revenue to the state. The purpose of this study is to evaluate the impact of the film production tax credit on Connecticut’s economy.
World capital markets have experienced large?scale sovereign defaults on a number of occasions, the most recent being Argentina?s default in 2002. This latest crisis is the fifth Argentine default or restructuring episode in the last 180 years. While Argentina may be an extreme case, sovereign defaults occur with some frequency in emerging markets.
A second set of facts about emerging markets relates to the behavior of the interest rates at which these economies borrow from the rest of the world and their current accounts. Interest rates and the current account are strongly counter cyclical and positively correlated with each other. That is, emerging markets tend to borrow more in good times and at lower interest rates than in slumps. These features contrast with those observed in developed small open economies.
