Does changing the timing of a yearly individual tax refund change the amount spent vs. saved?
The empirical evidence surrounding whether federal income tax refunds predominantly stimulate consumer spending or saving remains contradictory. This study is an attempt to combine income tax research findings with research on mental accounting and with the effects of estimated tax payments timing. The authors developed and administered an experiment, using college students as subjects, to test whether tax refunds administered as one lump-sum will be saved (vs. spent) more than tax refunds of the same amount refunded monthly through revised income tax withholding tables. The study also explores the types of saving and spending that result from refunds under both timing patterns. A within subjects experiment of student spending was used, and ANOVA results confirm that a refund delivered in monthly amounts (for example, by changing the federal income tax withholding tables) stimulated current spending more than if the same yearly total tax reduction was delivered in one lump-sum. The findings also suggest that the lump-sum distribution conversely will stimulate private saving more than a monthly distribution will. The study also explores other specific savings and spending tendencies, including the payment of credit cards vs. investments in securities, and the amount spent on durable goods vs. monthly expenditures across several monthly and yearly distributions. It is important to know if and how the timing of refunds affects savings and spending tendencies because tax cuts are often debated on the political stage as a means to stimulate spending, and the timing of the refund might change how effectively a tax cut meets that goal.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John A. Rizzo & Richard J. Zeckhauser, 2003. "Reference Incomes, Loss Aversion, and Physician Behavior," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 909-922, November.
- Read, Daniel & Loewenstein, George & Rabin, Matthew, 1999. "Choice Bracketing," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 171-197, December.
- Jonathan A. Parker, 1999. "The Reaction of Household Consumption to Predictable Changes in Social Security Taxes," American Economic Review, American Economic Association, vol. 89(4), pages 959-973, September.
- Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 233-261, October.
- Shapiro, Matthew D & Slemrod, Joel, 1995.
"Consumer Response to the Timing of Income: Evidence from a Change in Tax Withholding,"
American Economic Review,
American Economic Association, vol. 85(1), pages 274-283, March.
- Matthew D. Shapiro & Joel Slemrod, 1993. "Consumer Response to the Timing of Income: Evidence from a Change in Tax Withholding," NBER Working Papers 4344, National Bureau of Economic Research, Inc.
- Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6 National Bureau of Economic Research, Inc.
- Sheppard, Blair H & Hartwick, Jon & Warshaw, Paul R, 1988. " The Theory of Reasoned Action: A Meta-analysis of Past Research with Recommendations for Modifications and Future Research," Journal of Consumer Research, Oxford University Press, vol. 15(3), pages 325-343, December.
- 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.
- Matthew D. Shapiro & Joel Slemrod, 2003.
"Did the 2001 Tax Rebate Stimulate Spending? Evidence from Taxpayer Surveys,"
in: Tax Policy and the Economy, Volume 17, pages 83-110
National Bureau of Economic Research, Inc.
- Matthew D. Shapiro & Joel Slemrod, 2002. "Did the 2001 Tax Rebate Stimulate Spending? Evidence from Taxpayer Surveys," NBER Working Papers 9308, National Bureau of Economic Research, Inc.
- Souleles, Nicholas S., 2002. "Consumer response to the Reagan tax cuts," Journal of Public Economics, Elsevier, vol. 85(1), pages 99-120, July.
- Matthew D. Shapiro & Joel Slemrod, 2001.
"Consumer Response to Tax Rebates,"
NBER Working Papers
8672, National Bureau of Economic Research, Inc.
- Camerer, Colin & Babcock, Linda & Loewenstein, George & Thaler, Richard, 1996.
"Labor Supply of New York City Cab Drivers: One Day At A time,"
960, California Institute of Technology, Division of the Humanities and Social Sciences.
- Colin Camerer & Linda Babcock & George Loewenstein & Richard Thaler, 1997. "Labor Supply of New York City Cabdrivers: One Day at a Time," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 407-441.
- Joel Slemrod & Jon Bakija, 2004. "Taxing Ourselves, 3rd Edition: A Citizen's Guide to the Debate over Taxes," MIT Press Books, The MIT Press, edition 3, volume 1, number 026269302x.
- Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, Enero.
When requesting a correction, please mention this item's handle: RePEc:eee:joepsy:v:29:y:2008:i:6:p:856-862. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.