Tax Refunds and Unemployment Spells

In this economic climate, understanding the mechanisms through which aid to the unemployed affects job search behavior is particularly important. Recent research suggests that the level of cash-on-hand available to the unemployed is an important determinant of labor market behavior. The Earned Income Tax Credit (EITC) generates substantial seasonal variation in cash-on-hand and produces large average tax refunds for recipients. In addition these refunds are distributed in a very narrow time frame. This project will take advantage of this plausibly exogenous variation in cash-on-hand, investigating how recent receipt of a tax refund influences the job search behavior of the unemployed. The empirical strategy will compare demographically similar EITC-eligible individuals who enter into unemployment at different times of the year, using data from the Survey of Income and Program Participation (SIPP)