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

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  • Leslie McGranahan

Abstract

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.

Suggested Citation

  • Leslie McGranahan, 2016. "Tax Credits and the Debt Position of U.S. Households," Working Paper Series WP-2016-12, Federal Reserve Bank of Chicago.
    • Handle: RePEc:fip:fedhwp:wp-2016-12
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    References listed on IDEAS

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    1. Daniel Aaronson & Sumit Agarwal & Eric French, 2012. "The Spending and Debt Response to Minimum Wage Hikes," American Economic Review, American Economic Association, vol. 102(7), pages 3111-3139, December.
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    5. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Journal of Economic Literature, American Economic Association, vol. 34(4), pages 1797-1855, December.
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    More about this item

    Keywords

    Debt; household; Earned Income Tax Credit (EITC); tax policy;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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