Data and Code for: Rational Illiquidity and Consumption: Theory and Evidence from Income Tax Withholding and Refunds

Principal Investigator(s):  View help for Principal Investigator(s) Michael Gelman, Claremont McKenna College; Shachar Kariv, University of California-Berkeley; Matthew D. Shapiro, University of Michigan; Dan Silverman, Arizona State University

Version:  View help for Version V1

Name File Type Size Last Modified
  aux_matlab 03/24/2022 01:52:PM
  aux_stata 03/24/2022 01:52:PM
  cex_data 03/24/2022 01:52:PM
  fig 06/14/2022 02:23:PM
  irs_data 03/24/2022 01:52:PM
  tab 06/14/2022 02:42:PM
0README.docx application/vnd.openxmlformats-officedocument.wordprocessingml.document 38.2 KB 06/14/2022 10:22:AM
0README.pdf application/pdf 152.7 KB 06/14/2022 09:28:AM
1run_all.sh application/x-sh 1.1 KB 06/14/2022 10:00:AM
calculate_ATR.do text/plain 1.4 KB 03/24/2022 09:52:AM

Project Citation: 

Gelman, Michael, Kariv, Shachar, Shapiro, Matthew D., and Silverman, Dan. Data and Code for: Rational Illiquidity and Consumption: Theory and Evidence from Income Tax Withholding and Refunds. Nashville, TN: American Economic Association [publisher], 2022. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2022-08-30. https://doi.org/10.3886/E165922V1

Project Description

Summary:  View help for Summary Low liquidity and a high marginal propensity to consume are tightly linked. This paper analyzes this link in the context of income tax withholding and refunds. A theory of rational cash management with income uncertainty endogenizes the relationship between illiquidity and the MPC, and can explain the finding that households tend to spend tax refunds as if they valued liquidity, yet do not act to increase liquidity by reducing their withholding. The theory is supported by individual-level evidence based on financial account records, including a positive correlation between the size of tax refunds and the MPC out of those refunds.  
Funding Sources:  View help for Funding Sources Alfred P. Sloan Foundation; NSF-Census Research Network (NSF SES 1131500)

Scope of Project

Subject Terms:  View help for Subject Terms income uncertainty; liquidity; marginal propensity to consume; account data
JEL Classification:  View help for JEL Classification
      D14 Household Saving; Personal Finance
      E21 Macroeconomics: Consumption; Saving; Wealth
      H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
Geographic Coverage:  View help for Geographic Coverage USA
Time Period(s):  View help for Time Period(s) 12/1/2012 – 7/1/2016


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Published Versions

V1 [2022-08-30]

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