Working Paper: NBER ID: w19783
Authors: Brian Baugh; Itzhak Bendavid; Hoonsuk Park
Abstract: We explore household consumption surrounding federal tax returns filings and refunds receipt to test various theories of consumption. Because uncertainty regarding the refund is resolved at filing, precautionary savings theory predicts an increase in consumption at this date. Contrary to this prediction, we find that households generally do not increase consumption at filing. Following the receipt of the refunds, consumption of both durables and nondurables increases dramatically and then decays quickly. Our results show that households, on average, are financially constrained, exhibit myopic behavior, and do not respond to precautionary savings motives.
Keywords: No keywords provided
JEL Codes: D10; D11; D12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Precautionary savings theory (D14) | Consumption response at tax filing date (H31) |
| Tax refunds (H20) | Consumption response after receiving tax refunds (H31) |
| Tax refunds (H20) | Temporary spike in consumption (D19) |
| Information conveyed at the filing date (Y20) | Consumption response at tax filing date (H31) |