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Check in the Mail or More in the Paycheck: Does the Effectiveness of Fiscal Stimulus Depend on How It Is Delivered?

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Author Info

  • Claudia R. Sahm
  • Matthew D. Shapiro
  • Joel Slemrod

Abstract

Recent fiscal policies, including the 2008 stimulus payments and the 2009 Making Work Pay Tax Credit, aimed to increase household spending. This paper quantifies the spending response to these policies and examines differences in spending by whether the stimulus was delivered as a one-time payment or as a flow of payments from reduced withholding. Based on responses from a representative sample of households in the Thomson Reuters/University of Michigan Surveys of Consumers, the paper finds that the reduction in withholding in 2009 boosted spending at roughly half the rate (13 percent) as the one-time payments (25 percent) in 2008. (JEL D12, E21, E62)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/pol.4.3.216
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File URL: http://www.aeaweb.org/aej/pol/data/2010-0200_data.zip
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Economic Policy.

Volume (Year): 4 (2012)
Issue (Month): 3 (August)
Pages: 216-50

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Handle: RePEc:aea:aejpol:v:4:y:2012:i:3:p:216-50

Note: DOI: 10.1257/pol.4.3.216
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References

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  1. Souleles, Nicholas S., 2002. "Consumer response to the Reagan tax cuts," Journal of Public Economics, Elsevier, vol. 85(1), pages 99-120, July.
  2. David S. Johnson & Jonathan A. Parker & Nicholas S. Souleles, 2004. "Household Expenditure and the Income Tax Rebates of 2001," Working Papers 136, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
  3. Souleles, Nicholas S., 2000. "College tuition and household savings and consumption," Journal of Public Economics, Elsevier, vol. 77(2), pages 185-207, August.
  4. Claudia R. Sahm & Matthew D. Shapiro & Joel Slemrod, 2010. "Check in the Mail or More in the Paycheck: Does the Effectiveness of Fiscal Stimulus Depend on How It Is Delivered?," NBER Working Papers 16246, National Bureau of Economic Research, Inc.
  5. Claudia R. Sahm & Matthew D. Shapiro & Joel Slemrod, 2010. "Household Response to the 2008 Tax Rebate: Survey Evidence and Aggregate Implications," NBER Chapters, in: Tax Policy and the Economy, Volume 24, pages 69-110 National Bureau of Economic Research, Inc.
  6. Chang-Tai Hsieh, 2003. "Do Consumers React to Anticipated Income Changes? Evidence from the Alaska Permanent Fund," American Economic Review, American Economic Association, vol. 93(1), pages 397-405, March.
  7. Jonathan A. Parker, 1999. "The Reaction of Household Consumption to Predictable Changes in Social Security Taxes," American Economic Review, American Economic Association, vol. 89(4), pages 959-973, September.
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Citations

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Cited by:
  1. Damon Jones, 2012. "Inertia and Overwithholding: Explaining the Prevalence of Income Tax Refunds," American Economic Journal: Economic Policy, American Economic Association, vol. 4(1), pages 158-85, February.
  2. Justine Hastings & Jesse M. Shapiro, 2012. "Mental Accounting and Consumer Choice: Evidence from Commodity Price Shocks," NBER Working Papers 18248, National Bureau of Economic Research, Inc.
  3. Bernd Hayo & Matthias Uhl, 2014. "Taxation and Consumption: Evidence from a Representative Survey of the German Population," MAGKS Papers on Economics 201420, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  4. Christopher D. Carroll, 2012. "Implications of Wealth Heterogeneity For Macroeconomics," Economics Working Paper Archive 597, The Johns Hopkins University,Department of Economics.
  5. Christina D. Romer & David H. Romer, 2014. "Transfer Payments and the Macroeconomy: The Effects of Social Security Benefit Changes, 1952-1991," NBER Working Papers 20087, National Bureau of Economic Research, Inc.
  6. Tobias Cwik & Volker Wieland, 2011. "Keynesian government spending multipliers and spillovers in the euro area," Economic Policy, CEPR & CES & MSH, vol. 26(67), pages 493-549, 07.
  7. Bracha, Anat & Cooper, Daniel, 2013. "Asymmetric responses to tax-induced changes in personal income: the 2013 payroll tax hike versus anticipated 2012 tax refunds," Public Policy Brief, Federal Reserve Bank of Boston.
  8. Claudia R. Sahm & Matthew D. Shapiro & Joel Slemrod, 2010. "Check in the mail or more in the paycheck: does the effectiveness of fiscal stimulus depend on how it is delivered?," Finance and Economics Discussion Series 2010-40, Board of Governors of the Federal Reserve System (U.S.).
  9. Grant Graziani & Wilbert van der Klaauw & Basit Zafar, 2013. "A boost in the paycheck: survey evidence on workers’ response to the 2011 payroll tax cuts," Staff Reports 592, Federal Reserve Bank of New York.

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