TY - JOUR
T1 - Tax Refund Uncertainty
T2 - Evidence and Welfare Implications
AU - Caldwell, Sydnee
AU - Nelson, Scott
AU - Waldinger, Daniel
N1 - Funding Information:
* Caldwell: Haas School of Business and Department of Economics, UC Berkeley (email: scaldwell@berkeley. edu); Nelson: Booth School of Business, University of Chicago (email: scott.nelson@chicagobooth.edu); Waldinger: Department of Economics, New York University (email: danielwaldinger@nyu.edu). Camille Landais was coeditor for this article. Special thanks go to the City of Boston Office of Financial Empowerment, including Trinh Nguyen, Constance Martin, Mimi Turchinetz, Brian Robinson, Jason Andrade, and Joanne Evans. Ariel Duong provided invaluable assistance implementing the surveys. We thank Daron Acemoglu, Alex Bartik, Scarlet Chen, Amy Finkelstein, Damon Jones, Olivia Kim, Henrik Kleven, Patrick Kline, Jonathan Kolstad, Ilyana Kuziemko, Pascal Noel, Jonathan Parker, Ricardo Perez-Truglia, Jim Poterba, Antoinette Schoar, Lauren Taylor, Neil Thakral, Owen Zidar, and seminar audiences at the Boulder CDFM Conference, CFPB Research Conference, Harvard University, MIT, the New York Fed–ECB Consumer Expectations Conference, the NTA Annual Conference, the Princeton Public Finance Lunch, Texas A&M Public and Labor Conference, and the Washington Center for Equitable Growth Grantee Conference for helpful comments. An earlier version of this paper circulated under the title “Tax Refund Expectations and Financial Behavior.” IRB approval was granted by MIT (COUHES protocol 1511304889). Nelson gratefully acknowledges support from the Washington Center for Equitable Growth. Caldwell, Nelson, and Waldinger each thank the George and Obie Shultz Fund at MIT for its support and the National Science Foundation for support under NSF Doctoral Dissertation Research in Economics award No. 1729822. Any opinion, findings, and conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of the National Science Foundation.
Funding Information:
IRB approval was granted by MIT (COUHES protocol 1511304889). Nelson gratefully acknowledges support from the Washington Center for Equitable Growth. Caldwell, Nelson, and Waldinger each thank the George and Obie Shultz Fund at MIT for its support and the National Science Foundation for support under NSF Doctoral Dissertation Research in Economics award No. 1729822. Any opinion, findings, and conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of the National Science Foundation.
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 -