Monday, September 24, 2018
Lee Anne Fennel (Chicago) presents Money Matters at Loyola-L.A. today as part of its Tax Policy Colloquium Series hosted by Ellen Aprill and Katie Pratt:
This chapter from my forthcoming book, Slices and Lumps: Configuring Choice in Law, Markets, and Life (University of Chicago Press 2019), examines questions of lumpiness and granularity that arise in household budgeting and public finance contexts. People often have difficulty assembling the lumps of cash required to pay for indivisible goods like cars or down payments on homes. These difficulties can explain preferences that might otherwise seem puzzling, such as for lump sums rather than fragmented payment streams of higher present value. Seeming anomalies like the prevalence of income tax refunds and lottery play can be explained by the desire for lumpy consumption that would otherwise be difficult or impossible to finance. At the same time, better segmentation can help households achieve their goals, as studies showing the power of partitioning savings suggest.
Accordingly, attending to lumpiness and partitioning can inform the design of public finance policy. Split tax refund options and lottery-linked savings accounts are emerging examples, and further room for innovation exists in the structuring of savings and debt repayment, access to home equity, and the delivery of food assistance and other welfare benefits. Recognizing threshold effects in improving well-being also sharpens tradeoffs in the allocation of public assistance among households.
Ed McCaffery (USC) is the commentator.