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

• 成果类型: Article
• 署名作者: Gelman, Michael; Kariv, Shachar; Shapiro, Matthew D.; Silverman, Dan
• 署名单位: Claremont Colleges; Claremont Graduate University; Claremont McKenna College; University of California System; University of California Berkeley; University of Michigan System; University of Michigan; National Bureau of Economic Research; Arizona State University; Arizona State University-Tempe
• 刊物名称: AMERICAN ECONOMIC REVIEW
• ISSN/ISSBN: 0002-8282
• DOI: 10.1257/aer.20191385
• 发表日期: 2022
• 页码: 2959-2991
• 关键词: household consumption; transitory

摘要

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 marginal propensity to consume, 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 marginal propensity to consume out of those refunds.