Finance and Economics Discussion Series (FEDS)
May 2024
Personal Tax Changes and Financial Well-being: Evidence from the Tax Cuts and Jobs Act
Christine L. Dobridge, Joanne Hsu, and Mike Zabek
Abstract:
We estimate the effects of personal income tax decreases on financial well-being, including qualitative subjective assessments and quantitative measures. A plausibly causal design shows that tax decreases in the Tax Cuts and Jobs Act made survey respondents more likely to say they were “living comfortably” financially, with null effects at lower levels of subjective financial well-being. Estimates from a similar design using credit bureau data show that people who had larger tax decreases were modestly more likely to open new accounts, and more likely to have higher consumer credit balances. Tax decreases had effects on credit scores that are indistinguishable from zero. Results suggest that larger tax decreases improve financial wellbeing in ways not fully proxied by typical administrative data.
Keywords: Taxes, subjective well-being, household finances, credit, financial well-being
DOI: https://doi.org/10.17016/FEDS.2024.029
PDF: Full Paper
Related Materials: Accessible materials (.zip)
Disclaimer: The economic research that is linked from this page represents the views of the authors and does not indicate concurrence either by other members of the Board's staff or by the Board of Governors. The economic research and their conclusions are often preliminary and are circulated to stimulate discussion and critical comment. The Board values having a staff that conducts research on a wide range of economic topics and that explores a diverse array of perspectives on those topics. The resulting conversations in academia, the economic policy community, and the broader public are important to sharpening our collective thinking.