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Are Rising Earnings Profiles a Forced-Saving Mechanism?

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  • Neumark, David

Abstract

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.

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  • 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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    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. Gallagher, Emily A. & Gopalan, Radhakrishnan & Grinstein-Weiss, Michal & Sabat, Jorge, 2020. "Medicaid and household savings behavior: New evidence from tax refunds," Journal of Financial Economics, Elsevier, vol. 136(2), pages 523-546.
    3. Michael Gelman & Dan Silverman & Matthew Shapiro & Shachar Kariv, 2019. "Rational Illiquidity and Excess Sensitivity: Theory and Evidence from Income Tax Withholding and Refunds," 2019 Meeting Papers 542, Society for Economic Dynamics.
    4. 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.
    5. Michael Gelman & Shachar Kariv & Matthew D. Shapiro & Dan Silverman, 2022. "Rational Illiquidity and Consumption: Theory and Evidence from Income Tax Withholding and Refunds," American Economic Review, American Economic Association, vol. 112(9), pages 2959-2991, September.
    6. 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.
    7. Vladimir Gimpelson, 2019. "Age and Wage: Stylized Facts and Russian Evidence," HSE Economic Journal, National Research University Higher School of Economics, vol. 23(2), pages 185-237.
    8. Chernina, Eugenia & Gimpelson, Vladimir, 2022. "Do Wages Grow with Experience? Deciphering the Russian Puzzle," IZA Discussion Papers 15068, Institute of Labor Economics (IZA).
    9. David Neumark, 2003. "Age Discrimination Legislation in the United States," Contemporary Economic Policy, Western Economic Association International, vol. 21(3), pages 297-317, July.
    10. 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.
    11. 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.
    12. Ashraf, Nava & Gons, Nathalie & Karlan, Dean S. & Yin, Wesley, 2003. "A Review of Commitment Savings Products in Development Countries," ADB Economics Working Paper Series 45, Asian Development Bank.
    13. Chernina, Eugenia & Gimpelson, Vladimir, 2023. "Do wages grow with experience? Deciphering the Russian puzzle," Journal of Comparative Economics, Elsevier, vol. 51(2), pages 545-563.
    14. Neumark, David & Song, Joanne, 2013. "Do stronger age discrimination laws make Social Security reforms more effective?," Journal of Public Economics, Elsevier, vol. 108(C), pages 1-16.
    15. 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.).
    16. Thomas Zwick, 2012. "Consequences of Seniority Wages on the Employment Structure," ILR Review, Cornell University, ILR School, vol. 65(1), pages 108-125, January.
    17. 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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