Tax Credits and the Debt Position of U.S. Households

Leslie McGranahan

No WP-2016-12, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: This paper investigates the effect of tax credit receipt on the outstanding indebtedness of households. In particular, we use data on zip code level indebtedness to explore whether debt levels and past due amounts change more dramatically during tax refund season in those zip codes where households receive greater Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC) refunds. We see a substantial decline in debt past due in high tax credit zip codes during tax refund season indicating that some recipient households use tax refunds to repair their balance sheets. At the same time, we see increases in both auto and credit card debt during tax refund season showing a link between tax refunds and asset accumulation and consumption.

Keywords: Debt; household; Earned Income Tax Credit (EITC); tax policy (search for similar items in EconPapers)
JEL-codes: D1 H20 H60 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2016-10-26
New Economics Papers: this item is included in nep-pay and nep-pbe
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