Tax Credits and the Debt Position of U.S. Households

49 Pages Posted: 27 Oct 2016

Date Written: October, 2016


This paper investigates the effect of tax credit receipt on the outstanding indebtedness of households. In particular, we use data on zip code level indebtedness to explore whether debt levels and past due amounts change more dramatically during tax refund season in those zip codes where households receive greater Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC) refunds. We see a substantial decline in debt past due in high tax credit zip codes during tax refund season indicating that some recipient households use tax refunds to repair their balance sheets. At the same time, we see increases in both auto and credit card debt during tax refund season showing a link between tax refunds and asset accumulation and consumption.

Keywords: Debt, household, Earned Income Tax Credit (EITC), tax policy

JEL Classification: D1, H20, H60

Suggested Citation

McGranahan, Leslie, Tax Credits and the Debt Position of U.S. Households (October, 2016). FRB of Chicago Working Paper No. WP-2016-12, Available at SSRN:

Leslie McGranahan (Contact Author)

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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