Householder response to the earned income tax credit: path of sustenance or road to asset building


Abstract: This study seeks to gain a more complete picture about how the Earned Income Tax Credit program influences consumer expenditure and saving decisions. Based on survey data collected from over 18,000 taxpayers participating at the Volunteer Income Tax Assistance sites administered by the Community Food Resource Center, a nonprofit organization in New York City, we find that a fairly large proportion of lower-income taxpayers expect to use the majority of their refund for the purpose of paying debt and other more immediate expenses. Even so, almost 11 percent of these taxpayers reported that they would save a majority of their refund. ; The results from the empirical investigation determine that unbanked taxpayers are significantly more likely to open a low-cost savings account and that opening an account is positively related to the size of the refund. Evidence is also offered to show that nonprofit organizations can and do play an important role in helping to move lower income consumers into the financial mainstream and potentially facilitating asset-building behavior. This study helps inform policy by contributing to the growing body of literature about programs that encourage participation in the financial mainstream.

Keywords: Households; Income tax;

Status: Published in Proceedings of a conference held in Washington, DC. (2005 : April 7-8) : a Federal Reserve System Community Affairs Reseach Conference; Promises & Pitfalls: as Consumer Finance Options Multiply, Who Is Being Served and at What Cost?

Authors

Bibliographic Information

Provider: Federal Reserve Bank of Chicago

Part of Series: Proceedings

Publication Date: 2005

Number: 957