Spending Responses to High-Frequency Shifts in Payment Timing: Evidence from the Earned Income Tax Credit

This study explores the spending response to tax refunds for Earned Income Tax Credit recipients using a novel dataset combining transaction-based measures of retail spending with administrative IRS data on tax refunds. Our dataset allows us to exploit variation in the timing of EITC refunds, includ...

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Bibliographic Details
Published in:American economic journal. Economic policy 2023-08, Vol.15 (3), p.89-114
Main Authors: Aladangady, Aditya, Aron-Dine, Shifrah, Cashin, David, Dunn, Wendy, Feiveson, Laura, Lengermann, Paul, Richard, Katherine, Sahm, Claudia
Format: Article
Language:English
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Summary:This study explores the spending response to tax refunds for Earned Income Tax Credit recipients using a novel dataset combining transaction-based measures of retail spending with administrative IRS data on tax refunds. Our dataset allows us to exploit variation in the timing of EITC refunds, including changes related to the 2017 PATH Act, along with cross-state differences in refund magnitudes to identify spending responses. Results show EITC recipients spend about $0.30 per refund dollar ($1,150 for the average refund) within just two weeks of issuance, suggesting stimulus targeted at this population may provide a quick boost to aggregate demand. (JEL D12, E32, G51, H24, I38, K34)
ISSN:1945-7731
1945-774X
DOI:10.1257/pol.20200590