The Role of Earned Income Tax Credit in the Budgets of Low-Income Families

June 2010

Ruby Mendenhall, University of Illinois, Champaign/Urbana, Kathryn Edin, Harvard University, Susan Crowley, Harvard University, Jennifer Sykes, Harvard University, Laura Tach, Harvard University, Katrin Kriz, Emmanuel College, and Jeffrey R. Kling, Congressional Budget Office and NBER

Download 'working_paper10-05.pdf'.


Abstract

The annual receipt of large tax refunds, primarily due to the Earned Income Tax Credit (EITC), provides families with an unusual opportunity to save and build assets. In 2007, we conducted a short survey, followed by in-depth interviews, with 194 African-American, Latino, and White parents who received the EITC, all with refunds of at least $1,000. The survey reveals that a sizable fraction planned to allocate a considerable portion of their refund to savings and assets. In-depth interviews conducted roughly six months later reveal that a significant minority did allocate a portion of their refund toward these purposes, though not as often as planned. Many other recipients have significant asset building goals, which they say are fueled by the expectation of ongoing annual tax refunds.



Keywords:
Financial Access and Services, Social Welfare Programs and Policies