Disentangling Financial Constraints, Precautionary Savings, and Myopia: Household Behavior Surrounding Federal Tax Returns

Brian Baugh, Itzhak Ben-David and Hoonsuk Park
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Brian Baugh: OH State University
Hoonsuk Park: OH State University

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

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.

JEL-codes: D10 D11 D12 (search for similar items in EconPapers)
Date: 2013-12
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Citations: View citations in EconPapers (1)

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Working Paper: Disentangling Financial Constraints, Precautionary Savings, and Myopia: Household Behavior Surrounding Federal Tax Returns (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2013-20

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