TIMING IS MONEY: DOES LUMP‐SUM PAYMENT OF THE EARNED INCOME TAX CREDIT AFFECT SAVINGS AND DEBT?

Lauren E. Jones and Katherine Michelmore

Economic Inquiry, 2019, vol. 57, issue 3, 1659-1674

Abstract: Earned income tax credit (EITC) benefit income is paid out in a lump‐sum around tax time. We investigate whether savings and debt among EITC‐eligible families reflect the timing of payments. Using nationally representative, individual‐level data on self‐reported debt and savings outcomes, we search for differences in monthly behavior between EITC‐eligible and ‐ineligible households. We find evidence that credit card and unsecured debt holding among EITC‐eligible families reflects the timing of the EITC, with low debt levels at tax time relative to other months. Debt holding among ineligible families with children does not exhibit a similar pattern. We find limited evidence of intrayear patterns in savings behavior among EITC‐eligible families. (JEL D14, I38, H23)

Date: 2019
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