An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Valrie Chambers
Texas A & M University - Corpus Christi

Abstract: The empirical evidence surrounding whether tax refunds predominantly stimulate consumer spending or investment remains contradictory. Combining Slemrod’s (2004) findings with mental accounting, a within subjects experiment is developed and administered to determine whether tax refunds administered as one lump sum will be invested (vs. spent) more than tax refunds of the same amount refunded monthly, and explores specific savings and spending tendencies, including the payment of credit cards vs. investments in securities, or the amount spent on durable goods vs. monthly expenditures under both timing patterns. ANOVA results confirm that a refund delivered in monthly amounts stimulates current spending more than if the same annual amount is delivered in one lump sum. It is important to know if the timing of refunds affects savings and spending tendencies, and what the timing effects are because tax cuts are often debated on the political stage as a means to stimulate spending.

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