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

Author

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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    Blog mentions

    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:

    1. Lauren E. Jones & Kevin Milligan & Mark Stabile, 2019. "Child cash benefits and family expenditures: Evidence from the National Child Benefit," Canadian Journal of Economics, Canadian Economics Association, vol. 52(4), pages 1433-1463, November.
    2. Kuchler, Theresa & Pagel, Michaela, 2021. "Sticking to your plan: The role of present bias for credit card paydown," Journal of Financial Economics, Elsevier, vol. 139(2), pages 359-388.
    3. Zhan, Xinyu & Liang, Lanxin & Yu, Mingzhe, 2025. "Tax incentives and household consumption: Evidence from the personal income tax reform," Finance Research Letters, Elsevier, vol. 77(C).
    4. Martin Browning & Thomas F. Crossley & Joachim Winter, 2014. "The Measurement of Household Consumption Expenditures," Annual Review of Economics, Annual Reviews, vol. 6(1), pages 475-501, August.
    5. Leslie McGranahan, 2016. "Tax Credits and the Debt Position of U.S. Households," Working Paper Series WP-2016-12, Federal Reserve Bank of Chicago.
    6. Nemeczek, Fabian & Radermacher, Jan, 2022. "Personality-augmented MPC: Linking survey and transaction data to explain MPC heterogeneity by Big Five personality traits," SAFE Working Paper Series 348, Leibniz Institute for Financial Research SAFE.
    7. Svend E. Hougaard Jensen & Sigurdur P. Olafsson & Thorsteinn Sigurdur Sveinsson & Gylfi Zoega, 2022. "Mapping Educational Disparities in Life-Cycle Consumption," CESifo Working Paper Series 9855, CESifo.
    8. Brian Bucks & Karen Pence, 2015. "Wealth, pensions, debt, and savings: Considerations for a panel survey," Journal of Economic and Social Measurement, IOS Press, issue 1-4, pages 151-175.
    9. Tal Gross & Timothy J. Layton & Daniel Prinz, 2022. "The Liquidity Sensitivity of Healthcare Consumption: Evidence from Social Security Payments," American Economic Review: Insights, American Economic Association, vol. 4(2), pages 175-190, June.

    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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