Work

Mental Accounting Effects of Income Tax Shifting

Year: 2010

Type: article

Abstract: This paper analyzes a 1992 decrease in U.S. federal income tax withholding that shifted the timing of income tax payments while leaving ultimate tax burdens unchanged. Consequently income typically received as a lump-sum refund on filing a tax return was shifted into the previous year's monthly income. This paper considers the impact of the withholding change in the context of mental accounting and finds a decrease in the probability that households contributed to a tax-preferred retirement account. Additional robustness tests show that short-term saving did not simultaneously increase and that the main findings are not driven by liquidity constraints.

Source: The Review of Economics and Statistics

DOI: 10.1162/rest.2009.11892

Author: Naomi E Feldman

Institutions: Ben-Gurion University of the Negev, Hebrew University of Jerusalem

Language: English

Topic: Financial Literacy, Pension, Retirement Analysis

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2108805028

FWCI: 7.844

Cites: 23

Cited by: 55

Related to: 20