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

42 Pages Posted: 4 Jan 2014

See all articles by Brian Baugh

Brian Baugh

Univeristy of Nebraska at Lincoln (UNL) - Department of Finance

Itzhak Ben-David

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)

Hoonsuk Park

Nanyang Technological University (NTU)

Date Written: January 2014

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 and Ben-David, Itzhak and Park, Hoonsuk, Disentangling Financial Constraints, Precautionary Savings, and Myopia: Household Behavior Surrounding Federal Tax Returns (January 2014). NBER Working Paper No. w19783. Available at SSRN: https://ssrn.com/abstract=2374558

Brian Baugh (Contact Author)

Univeristy of Nebraska at Lincoln (UNL) - Department of Finance ( email )

Lincoln, NE 68588-0490
United States

HOME PAGE: http://https://cba.unl.edu/people/bbaugh

Itzhak Ben-David

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Fisher 700D
Columbus, OH 43210-1144
United States
773 988 1353 (Phone)

HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/index.htm

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/

Hoonsuk Park

Nanyang Technological University (NTU) ( email )

S3 B2-A28 Nanyang Avenue
Singapore, 639798
Singapore

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