Tax Refund Uncertainty: Evidence and Welfare Implications

Sydnee Caldwell, Scott Nelson () and Daniel Waldinger ()
Additional contact information
Scott Nelson: University of Chicago - Booth School of Business
Daniel Waldinger: New York University (NYU) - Furman Center for Real Estate and Urban Policy

No 2021-18, Working Papers from Becker Friedman Institute for Research In Economics

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.

Pages: 55 pages
Date: 2021
New Economics Papers: this item is included in nep-pbe and nep-pub
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https://repec.bfi.uchicago.edu/RePEc/pdfs/BFI_WP_2021-18.pdf (application/pdf)

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Journal Article: Tax Refund Uncertainty: Evidence and Welfare Implications (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:bfi:wpaper:2021-18

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