Timing Is Money: Does Lump-Sum Payment of Tax Credits Impact Household Finances?

40 Pages Posted: 10 Jan 2016 Last revised: 5 Aug 2018

See all articles by Lauren Eden Jones

Lauren Eden Jones

The Ohio State University

Katherine Michelmore

University of Michigan at Ann Arbor; Syracuse University

Date Written: June 2018

Abstract

Earned Income Tax Credit benefit income is paid out in a lump-sum around tax time. We investigate whether household finances reflect the timing of payment. Using nationally representative, individual-level data on self-reported debt and savings, we search for differences in monthly behavior between EITC-eligible and -ineligible households. Eligible households reduce their outstanding debt by about half in the months when they are most likely to receive their EITC income, and are less likely to use unsecured debt; no similar pattern is apparent among ineligible families. We find limited evidence of intra-year patterns in savings behavior.

Keywords: EITC, household finance, savings, credit card debt

JEL Classification: H2, I3, J18

Suggested Citation

Jones, Lauren Eden and Michelmore, Katherine, Timing Is Money: Does Lump-Sum Payment of Tax Credits Impact Household Finances? (June 2018). Available at SSRN: https://ssrn.com/abstract=2712849 or http://dx.doi.org/10.2139/ssrn.2712849

Lauren Eden Jones

The Ohio State University ( email )

1787 Neil Avenue
Columbus, OH 43210
United States

Katherine Michelmore (Contact Author)

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

Syracuse University ( email )

900 S. Crouse Avenue
Syracuse, NY 13244-2130
United States

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