Paying To Save: Tax Withholding And Asset Allocation Among Low - And Moderate-Income Taxpayers

The author analyzes the phenomenon that low- and moderate-income (LMI) tax filers exhibit a "preference for over-withholding" their taxes, a measure the author derives from a unique set of questions administered in a dataset of 1,003 households, which is collected through the Survey Research Center at the University of Michigan. The author argues that the relationship between their withholding preference and portfolio allocation across liquid and illiquid assets is consistent with models with present-biased preferences, and that individual exhibits self-control problem when making their consumption and saving decisions.