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

Aditya Aladangady, Shifrah Aron-Dine, David Cashin, Wendy Dunn, Laura Feiveson, Paul Lengermann, Katherine Richard and Claudia Sahm

American Economic Journal: Economic Policy, 2023, vol. 15, issue 3, 89-114

Abstract: 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-codes: D12 E32 G51 H24 I38 K34 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:aea:aejpol:v:15:y:2023:i:3:p:89-114

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DOI: 10.1257/pol.20200590

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