Low liquidity and a high marginal propensity to consume are tightly linked. This paper analyzes this link in the context of income tax withholding refunds. A theory rational cash management with uncertainty endogenizes relationship between illiquidity consume, can explain finding that households tend spend refunds as if they valued liquidity, yet do not act increase by reducing their withholdin...

How are the optimal tax and debt policies affected if government can default on its debt? We address this question from a normative perspective in an economy with noncontingent debt, domestic default, labor taxes. On one hand, prevents incurring future distortions associated servicing debt. other risk gives rise to endogenous credit limits that hinder government's ability smooth characterize fi...

Analyzing account-level data from an account aggregator, we find that households increase consumption when they receive expected tax refunds, as if face liquidity constraints. However, these same smooth making payments in other years, primarily by transferring funds among liquid accounts. Even carrying credit card debt payments, and even highly spend out of refunds. This behavior is inconsisten...

We study reforms of nonlinear income tax systems from a political economy perspective. present median voter theorem for monotonic reforms, so that the change in burden is function income. also provide an empirical analysis with focus on United States. show past have, by and large, been monotonic. support was aligned majority population. Finally, we develop sufficient statistics enable to test w...

The steady rise in income and wealth inequality the last four decades, together with evolution of a vanishing middle class, has raised concerns about potentially pernicious effects these trends on social stability economic growth. This paper evaluates possibility designing tax systems aimed at reducing bipolarization. Using two fundamentally different metrics, we provide unified foundation prog...