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Are Rising Earnings Profiles a Forced-Saving Mechanism?


  • Neumark, David


This paper tests the hypothesis that rising earnings profiles are a mechanism by which individuals engage in forced saving. It does this by examining the cross-sectional relationship between overwithholding on income tax payments--behavior that is consistent with a preference for forced saving--and the slopes of age-earnings profiles. The forced-saving hypothesis receives support from earnings regression estimates. Individuals who receive tax refunds are on earnings profiles that are significantly steeper and have significantly lower intercepts. Copyright 1995 by Royal Economic Society.

Suggested Citation

  • Neumark, David, 1995. "Are Rising Earnings Profiles a Forced-Saving Mechanism?," Economic Journal, Royal Economic Society, vol. 105(428), pages 95-106, January.
  • Handle: RePEc:ecj:econjl:v:105:y:1995:i:428:p:95-106

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    References listed on IDEAS

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    Cited by:

    1. Damon Jones, 2012. "Inertia and Overwithholding: Explaining the Prevalence of Income Tax Refunds," American Economic Journal: Economic Policy, American Economic Association, vol. 4(1), pages 158-185, February.
    2. Adams, Scott, 2007. "Health insurance market reform and employee compensation: The case of pure community rating in New York," Journal of Public Economics, Elsevier, vol. 91(5-6), pages 1119-1133, June.
    3. Nicholas S. Souleles, 1999. "The Response of Household Consumption to Income Tax Refunds," American Economic Review, American Economic Association, vol. 89(4), pages 947-958, September.
    4. David Neumark, 2003. "Age Discrimination Legislation in the United States," Contemporary Economic Policy, Western Economic Association International, vol. 21(3), pages 297-317, July.
    5. Sven Stöwhase, 2011. "Non-minimization of source taxes on labor income: empirical evidence from Germany," Review of Economics of the Household, Springer, vol. 9(2), pages 293-306, June.
    6. Clark, Andrew E., 1999. "Are wages habit-forming? evidence from micro data," Journal of Economic Behavior & Organization, Elsevier, vol. 39(2), pages 179-200, June.
    7. Michael S. Barr & Jane K. Dokko, 2008. "Paying to save: tax withholding and asset allocation among low- and moderate-income taxpayers," Finance and Economics Discussion Series 2008-11, Board of Governors of the Federal Reserve System (U.S.).
    8. Hudson, John & Sessions, John G., 2011. "Parental education, labor market experience and earnings: New wine in an old bottle?," Economics Letters, Elsevier, vol. 113(2), pages 112-115.

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