The Effects of the Earned Income Credit on the Seasonality of Household Expenditures

Posted: 7 Mar 2001

See all articles by Lisa Barrow

Lisa Barrow

Federal Reserve Bank of Chicago

Leslie McGranahan

Federal Reserve Bank of Chicago

Abstract

Using data from the Consumer Expenditure Survey, we investigate whether the Earned Income Credit (EIC) leads to changes in seasonal expenditure patterns of low-income workers. We find that EIC eligible households spend approximately 3 percent more total during February, the modal month of EIC refunds, and 9 percent more on durable goods than non-eligible households. The increased spending on durable goods indicates that the EIC facilitates the purchasing of big-ticket items by low-income families. These estimates, when converted to dollars, also suggest that EIC recipients smooth expenditure somewhat since the average increase in expenditure is less than the average EIC refund.

Suggested Citation

Barrow, Lisa and McGranahan, Leslie, The Effects of the Earned Income Credit on the Seasonality of Household Expenditures. Available at SSRN: https://ssrn.com/abstract=251094

Lisa Barrow (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States
312-322-5073 (Phone)
312-322-2357 (Fax)

Leslie McGranahan

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States
312-322-5023 (Phone)
312-322-2357 (Fax)

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