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The effect of tax changes on consumer spending

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  • Charles Steindel

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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Bibliographic Info

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

Volume (Year): 7 (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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Keywords: Income tax ; Taxation ; Consumption (Economics);

References

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  1. 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.
  2. Eisner, Robert, 1971. "What Went Wrong?," Journal of Political Economy, University of Chicago Press, vol. 79(3), pages 629-41, May-June.
  3. Blinder, Alan S, 1981. "Temporary Income Taxes and Consumer Spending," Journal of Political Economy, University of Chicago Press, vol. 89(1), pages 26-53, February.
  4. David W. Wilcox, 1987. "Social security benefits, consumption expenditure, and the life cycle hypothesis," Working Paper Series / Economic Activity Section 78, Board of Governors of the Federal Reserve System (U.S.).
  5. 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.
  6. 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, vol. 6(Sep).
  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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Cited by:
  1. James Alm & Asmaa El-Ganainy, 2012. "Value-added Taxation and Consumption," Working Papers 1203, Tulane University, Department of Economics.
  2. Brigitte Desroches & Marc-André Gosselin, 2002. "The Usefulness of Consumer Confidence Indexes in the United States," Working Papers 02-22, Bank of Canada.

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