Dissertation/Thesis Abstract

Illuminating the Barriers to Asset-Building by LMI Taxpayers: A Study of the Earned Income Tax Credit, Tax Refunds, and Debt
by Black, Jody, Ph.D., Brandeis University, The Heller School for Social Policy and Management, 2017, 217; 10263719
Abstract (Summary)

This mixed-methods study explores the antipoverty impact of tax refunds on low- and moderate- income (LMI) earners, including any effect from personalized financial information delivered at tax preparation (the “Financial Check-up” or “FCU”). LMI taxpayer refunds typically may consist of overwitheld amounts from wages, the Earned Income Tax Credit (EITC), and the refundable Additional Child Tax Credit. Previous research has shown inconsistent results on the enhanced asset-building effectiveness of providing LMI earners with (i) a lump-sum tax subsidy versus smaller amounts distributed more frequently, and (ii) financial information.

With varying specifics, the six research questions ask how federal income taxation and consumer credit impact LMI asset building, including any effect of the FCU at tax preparation. This study adds to the literature by illuminating the barriers to asset building that LMI taxpayers face from these institutional systems and the impact of personalized financial information delivered at tax preparation. A goal of this research is to identify possible policy paths to asset development among LMI earners. The framework utilized behavioral economics of mental accounting, institutional asset building, financial capability, and asset accumulation theories.

Regression analyses tested relationships between variables pertaining to LMI taxpayer credit card debt, tax refund uses, and the implementation of financial recommendations. These variables were derived using survey, credit, and tax return data from 119 LMI taxpayers in Boston. Three questions were addressed qualitatively using data from in-depth interviews with 17 LMI taxpayers.

The results of the quantitative analyses show positive associations between (i) LMI taxpayers with dependents and debt, and the use of larger refunds for paying consumer debt, but also some use for specific asset-building purposes; (ii) tax overwithholding and higher consumer debt, but also refund allocation to savings; (iii) the elapse of a year between FCU and following an FCU recommendation; and (iv) FCU influence on debt payment and credit score. The qualitative findings show that low earnings and lack of assets contribute to keeping the LMI taxpayer in a precarious financial position. Receiving financial guidance at tax preparation can be useful but is insufficient to counter the structural barriers to asset building.

Indexing (document details)
Advisor: Bailis, Lawrence N.
Commitee: Meschede, Tatjana, Romich, Jennifer, Shapiro, Thomas M.
School: Brandeis University, The Heller School for Social Policy and Management
Department: The Heller School for Social Policy and Management
School Location: United States -- Massachusetts
Source: DAI-A 78/11(E), Dissertation Abstracts International
Source Type: DISSERTATION
Subjects: Social research, Behavioral Sciences, Public policy
Keywords: Asset-building, Earned income tax credit, Financial capability, Institutional theory of saving, Mental accounts, Taxation withholding
Publication Number: 10263719
ISBN: 9781369870060
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