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

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Listed:
  • Baugh, Brian

    (OH State University)

  • Ben-David, Itzhak

    (OH State University)

  • Park, Hoonsuk

    (OH State University)

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.

Suggested Citation

  • Baugh, Brian & Ben-David, Itzhak & Park, Hoonsuk, 2013. "Disentangling Financial Constraints, Precautionary Savings, and Myopia: Household Behavior Surrounding Federal Tax Returns," Working Paper Series 2013-20, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2013-20
    as

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Tax refunds and myopia
      by Economic Logician in Economic Logic on 2014-01-27 20:50:00

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    Cited by:

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    More about this item

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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