Do Tax-Time Savings Deposits Reduce Hardship Among Low-Income Filers? A Propensity Score Analysis
Objective: A lack of emergency savings renders low-income households vulnerable to material hardships resulting from unexpected expenses or loss of income. Having emergency savings helps these households respond to unexpected events, maintain consumption, and avoid high-cost credit products. Because many low-income households receive sizable federal tax refunds, tax time is an opportunity for these households to allocate a portion of refunds to savings. We hypothesized that low-income tax filers who deposit at least part of their tax refunds into a savings account will experience less material and health care hardship compared to non-depositors. Method: Using data from a household financial survey of a large-scale tax-time savings initiative, we examined the effects of saving tax refunds on material and health care hardship outcomes 6 months after filing taxes among a sample of low-income filers (n = 7,537). We used propensity score analysis to adjust for self-selection bias. Results: Six months after filing taxes, depositors have statistically significant better outcomes than non-depositors for five of six hardship outcomes. Also, Black filers have statistically significant worse outcomes than White filers for half of hardship indicators. Conclusions: Findings affirm the importance of saving refunds at tax time as a way to lower the likelihood of experiencing various hardships. Findings concerning race suggest that Black households face greater hardship risks than White households, reflecting broader patterns of social inequality.
Grinstein-Weiss, M., Despard, M. R., Guo, S., Russell, B., Key, C., & Raghavan, R. (2016). Do tax-time savings deposits reduce hardship among low-income filers? A propensity score analysis. Journal of the Society for Social Work and Research, 7(4), 707–728. doi:10.1086/689357
Refund to Savings (R2S)
Refund to Savings (RS), saving, savings, tax, savings, contingency, tax refunds, material hardship, inequality
Grinstein-Weiss, Michal, "Do Tax-Time Savings Deposits Reduce Hardship Among Low-Income Filers? A Propensity Score Analysis" (2016). Center for Social Development Research. 591.