Tax Refund Uncertainty: Evidence and Welfare Implications

Sydnee Caldwell, Scott Nelson, Daniel Waldinger

    Research output: Contribution to journalArticlepeer-review

    Abstract

    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.

    Original languageEnglish (US)
    Pages (from-to)352-376
    Number of pages25
    JournalAmerican Economic Journal: Applied Economics
    Volume15
    Issue number2
    DOIs
    StatePublished - 2023

    ASJC Scopus subject areas

    • General Economics, Econometrics and Finance

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