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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?

Author

Listed:
  • Sahm, Claudia R.
  • Shapiro, Matthew D.
  • Slemrod, Joel

Abstract

Recent fiscal policies have aimed to stimulate household spending. In 2008, most households received one-time economic stimulus payments. In 2009, most working households received the Making Work Pay tax credit in the form of reduced withholding; other households, mainly retirees, received one-time payments. This paper quantifies the spending response to these different policies and examines whether the spending response differed according to whether the stimulus was delivered as a one-time payment or as a flow of payments in the form of 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 led to a substantially lower rate of spending than the one-time payments. Specifically, 25 percent of households reported that the one-time economic stimulus payment in 2008 led them to mostly increase their spending while only 13 percent reported that the extra pay from the lower withholding in 2009 led them to mostly increase their spending. The paper uses several approaches to isolate the effect of the delivery mechanism from the changing aggregate and individual conditions. Responses to a hypothetical stimulus in 2009, examination of JEL Classification: H31, E62, C83

Suggested Citation

  • Sahm, Claudia R. & Shapiro, Matthew D. & Slemrod, Joel, 2011. "Check in the mail or more in the paycheck: does the effectiveness of fiscal stimulus depend on how it is delivered?," Working Paper Series 1298, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20111298
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    References listed on IDEAS

    as
    1. 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.
    2. Claudia R. Sahm & Matthew D. Shapiro & Joel Slemrod, 2012. "Check in the Mail or More in the Paycheck: Does the Effectiveness of Fiscal Stimulus Depend on How It Is Delivered?," American Economic Journal: Economic Policy, American Economic Association, vol. 4(3), pages 216-250, August.
    3. Chambers, Valrie & Spencer, Marilyn, 2008. "Does changing the timing of a yearly individual tax refund change the amount spent vs. saved?," Journal of Economic Psychology, Elsevier, vol. 29(6), pages 856-862, December.
    4. Shapiro, Matthew D & Slemrod, Joel, 1995. "Consumer Response to the Timing of Income: Evidence from a Change in Tax Withholding," American Economic Review, American Economic Association, vol. 85(1), pages 274-283, March.
    5. Jonathan A. Parker & Nicholas S. Souleles & David S. Johnson & Robert McClelland, 2013. "Consumer Spending and the Economic Stimulus Payments of 2008," American Economic Review, American Economic Association, vol. 103(6), pages 2530-2553, October.
    6. Nicholas S. Souleles & Jonathan A. Parker & David S. Johnson, 2006. "Household Expenditure and the Income Tax Rebates of 2001," American Economic Review, American Economic Association, vol. 96(5), pages 1589-1610, December.
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    9. Matthew D. Shapiro & Joel Slemrod, 2003. "Did the 2001 Tax Rebate Stimulate Spending? Evidence from Taxpayer Surveys," NBER Chapters, in: Tax Policy and the Economy, Volume 17, pages 83-110, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    fiscal stimulus; marginal propensity to consume; survey responses; tax rebates;
    All these keywords.

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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