Tax refund uncertainty evidence and welfare implications Sydnee Caldwell, Scott Nelson and Daniel Waldinger
By: Caldwell, Sydnee
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Contributor(s): Nelson, Scott M | Waldinger, Daniel.
Material type: 
ArticleSubject(s): IMPUESTOS | DEVOLUCION DE INGRESOS INDEBIDOS | RENTAS BAJAS | RENTA FAMILIAR | ESTADOS UNIDOS
In:
American Economic Journal : Applied Economics v. 15, n. 2, April 2023, 2023, p. 352-376Summary: Transfers paid through annual tax refunds are a large but uncertain source of income for poor households. We document that low-income tax filers have substantial subjective uncertainty about these refunds. We investigate the determinants and consequences of refund uncertainty by linking survey, tax, and credit bureau data. On average, filers' expectations track realized refunds. More uncertain filers have larger differences between expected and realized refunds. Filers borrow in anticipation of their refunds, but more uncertain filers borrow less, consistent with precautionary behavior. A simple consumption-savings model suggests that refund uncertainty reduces the welfare benefits of the EITC by about 10 percent.
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Transfers paid through annual tax refunds are a large but uncertain source of income for poor households. We document that low-income tax filers have substantial subjective uncertainty about these refunds. We investigate the determinants and consequences of refund uncertainty by linking survey, tax, and credit bureau data. On average, filers' expectations track realized refunds. More uncertain filers have larger differences between expected and realized refunds. Filers borrow in anticipation of their refunds, but more uncertain filers borrow less, consistent with precautionary behavior. A simple consumption-savings model suggests that refund uncertainty reduces the welfare benefits of the EITC by about 10 percent.
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