Do Tax-Time Savings Deposits Reduce Hardship Among Low-Income Filers? A Propensity Score Analysis

Abstract

AbstractObjective: 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 a...