Academic journal article The Journal of Consumer Affairs

Behavioral Interventions to Increase Tax-Time Saving: Evidence from a National Randomized Trial

Academic journal article The Journal of Consumer Affairs

Behavioral Interventions to Increase Tax-Time Saving: Evidence from a National Randomized Trial

Article excerpt

We provide new large-scale experimental evidence on policies that aim to boost household saving out of income tax refunds. Households that filed income tax returns with an online tax preparer and chose to receive their refund electronically were randomized into eight treatment groups, which received different combinations of motivational saving prompts and suggested shares of the refund to save--25% and 75%--and a control group, which received neither. In treatment conditions where they were presented, motivational prompts focused on various savings goals: general, retirement, or emergency. Analysis reveals that higher suggested that allocations generated increased allocations of the refund to savings but that prompts for different reasons to save did not. These interventions, which draw on lessons from behavioral economics, represent potentially low-cost, scalable tools for policy makers interested in helping low- and moderate-income households build savings.


Many American households have accumulated very little wealth in general and little contingency savings in particular. Lack of access to assets in a time of emergency can cause material hardship and can turn what might have been a minor economic issue, such as a car repair or a spell of unemployment, into a major economic setback. However, there are opportunities to address the lack of contingency savings in US households, and the annual windfall that comes from the income tax refund is a particularly compelling one. Concerns about the level of saving and the possibilities raised by large refund checks have drawn the interest of policy makers and researchers, motivating efforts to encourage households to save part or all of the refund. Several previous papers, noted below, have examined ways to encourage households to save portions of refunds or to save at the time of tax filing. That literature has reported mixed success.

This article provides new evidence from a large-scale experiment examining how public policies could affect household saving out of income tax refunds. In the experiment, households that filed income tax returns with a preparer, received refunds, and chose to receive the refunds electronically were randomized into nine different groups: a control group and eight treatment groups. The eight treatment groups were exposed to different combinations of four saving prompts--none, general saving, retirement saving, or emergency saving--and two suggested savings allocations of the refund (25% and 75%). Members of the control group received neither a saving prompt nor a suggested allocation.

The goal of the experiment is to examine ways to help low- and moderate-income households build contingency savings. The interventions are based on strategies, especially priming and anchoring, informed by behavioral economics (Epley and Gilovich 2006; Kahneman 2003; Tversky and Kahneman 1974). Because the experiment is built into a preexisting, widely used platform for tax filing, the interventions are potentially scalable and cost effective. We use contributions directly deposited to a savings account as a proxy in measuring efforts to build contingency savings.

Our central results are that higher suggested savings allocations generate higher allocations to savings accounts, but the effects are small. Moreover, the various prompts reminding people of different reasons to save generally have no effect or have a negative impact.

Three sets of empirical results support these findings. First, treatment raised the probability of contributing to a savings account (i.e., the probability of putting the whole refund in a savings account or of splitting the refund into more than one account) and the amount contributed to a savings account. About 7.2% of control-group members contributed at least part of the refund to a savings account. In comparison, 9.8% of the treatment groups contributed at least part. The average amount contributed to a savings account was $73 among control-group members and $93 among treatment recipients. …

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