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

Author

Listed:
  • Aditya Aladangady
  • Shifrah Aron-Dine
  • David Cashin
  • Wendy Dunn
  • Laura Feiveson
  • Paul Lengermann
  • Katherine Richard
  • Claudia Sahm

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.

Suggested Citation

  • Aditya Aladangady & Shifrah Aron-Dine & David Cashin & Wendy Dunn & Laura Feiveson & Paul Lengermann & Katherine Richard & Claudia Sahm, 2023. "Spending Responses to High-Frequency Shifts in Payment Timing: Evidence from the Earned Income Tax Credit," American Economic Journal: Economic Policy, American Economic Association, vol. 15(3), pages 89-114, August.
    • Handle: RePEc:aea:aejpol:v:15:y:2023:i:3:p:89-114
    DOI: 10.1257/pol.20200590
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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law

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