TY - JOUR
T1 - Tax Refund Uncertainty
T2 - Evidence and Welfare Implications
AU - Caldwell, Sydnee
AU - Nelson, Scott
AU - Waldinger, Daniel
N1 - Publisher Copyright:
© 2023, American Economic Journal: Applied Economics. All Rights Reserved.
PY - 2023
Y1 - 2023
N2 - Transfers paid through annual tax refunds are a large but uncertain source of income for poor households. We document that low-income tax filers have substantial subjective uncertainty about these refunds. We investigate the determinants and consequences of refund uncertainty by linking survey, tax, and credit bureau data. On average, filers’ expectations track realized refunds. More uncertain filers have larger differences between expected and realized refunds. Filers borrow in anticipation of their refunds, but more uncertain filers borrow less, consistent with precautionary behavior. A simple consumption-savings model suggests that refund uncertainty reduces the welfare benefits of the EITC by about 10 percent.
AB - Transfers paid through annual tax refunds are a large but uncertain source of income for poor households. We document that low-income tax filers have substantial subjective uncertainty about these refunds. We investigate the determinants and consequences of refund uncertainty by linking survey, tax, and credit bureau data. On average, filers’ expectations track realized refunds. More uncertain filers have larger differences between expected and realized refunds. Filers borrow in anticipation of their refunds, but more uncertain filers borrow less, consistent with precautionary behavior. A simple consumption-savings model suggests that refund uncertainty reduces the welfare benefits of the EITC by about 10 percent.
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U2 - 10.1257/app.20210383
DO - 10.1257/app.20210383
M3 - Article
AN - SCOPUS:85163340554
SN - 1945-7782
VL - 15
SP - 352
EP - 376
JO - American Economic Journal: Applied Economics
JF - American Economic Journal: Applied Economics
IS - 2
ER -