NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Brian Baugh, Itzhak Ben-David, Hoonsuk Park

NBER Working Paper No. 19783
Issued in January 2014
NBER Program(s):Corporate Finance

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.

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Document Object Identifier (DOI): 10.3386/w19783

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