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The effect of tax changes on consumer spending

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Author Info
Charles Steindel

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Abstract

Many supporters of the tax cut enacted this summer viewed it as an important stimulus to consumer spending. But an analysis of the effects of earlier income tax cuts suggests that the consumer response to such initiatives is, in fact, quite variable. Two conclusions stand out: First, consumers will be more likely to boost spending if the change in tax liabilities is permanent. Second, consumers will wait to increase spending until a tax change affects their take-home pay.

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Publisher Info
Article provided by Federal Reserve Bank of New York in its journal Current Issues in Economics and Finance.

Volume (Year): (2001)
Issue (Month): Dec ()
Pages:
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Handle: RePEc:fip:fednci:y:2001:i:dec:n:v.7no.11

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Related research
Keywords: Income tax ; Taxation ; Consumption (Economics);

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. 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. [Downloadable!] (restricted)
  2. Campbell, John Y & Mankiw, N Gregory, 1990. "Permanent Income, Current Income, and Consumption," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(3), pages 265-79, July.
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  3. Eisner, Robert, 1971. "What Went Wrong?," Journal of Political Economy, University of Chicago Press, vol. 79(3), pages 629-41, May-June. [Downloadable!] (restricted)
  4. Richard Peach & Charles Steindel, 2000. "A nation of spendthrifts? An analysis of trends in personal and gross saving," Current Issues in Economics and Finance, Federal Reserve Bank of New York, issue Sep. [Downloadable!]
  5. Alan S. Blinder, 1981. "Temporary Income Taxes and Consumer Spending," NBER Working Papers 0283, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Nicholas S. Souleles, 1999. "The Response of Household Consumption to Income Tax Refunds," American Economic Review, American Economic Association, vol. 89(4), pages 947-958, September. [Downloadable!] (restricted)
  7. Wilcox, David W, 1989. "Social Security Benefits, Consumption Expenditure, and the Life Cycle Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 288-304, April. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Brigitte Desroches & Marc-André Gosselin, 2002. "The Usefulness of Consumer Confidence Indexes in the United States," Working Papers 02-22, Bank of Canada. [Downloadable!]
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This page was last updated on 2009-12-9.

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