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The household spending response to the 2003 tax cut: evidence from survey data

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Author Info
Julia Lynn Coronado
Joseph P. Lupton
Louise M. Sheiner

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Abstract

The Jobs and Growth Tax Relief and Reconciliation Act of 2003 has been described as textbook fiscal stimulus. Using household survey data on the self-reported qualitative response to the tax cuts, we estimate that the boost to aggregate personal consumption expenditures from the child credit rebate and the reduction in withholdings raised the average level of real GDP in the second half of 2003 by 0.2 percent and by 0.3 percent in the first half of 2004. We also show that households in the survey were well aware of their tax cuts and tended to spend equally out of the child credit rebate and the reduced withholdings, a result that is contrary to the conventional wisdom.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2005-32.

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Date of creation: 2005
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Handle: RePEc:fip:fedgfe:2005-32

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Related research
Keywords: Consumption (Economics) ; Tax credits ; Finance; Personal;

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References listed on IDEAS
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  1. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Discussion Papers 96-01, University of Copenhagen. Department of Economics.
    Other versions:
  2. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income and Interest Rates: Reinterpreting the Time Series Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246 National Bureau of Economic Research, Inc. [Downloadable!]
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  3. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 397-444, April. [Downloadable!] (restricted)
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  4. repec:att:wimass:199724 is not listed on IDEAS
  5. Matthew D. Shapiro & Joel Slemrod, 2003. "Consumer Response to Tax Rebates," American Economic Review, American Economic Association, vol. 93(1), pages 381-396, March. [Downloadable!]
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  6. repec:rus:hseeco:95340 is not listed on IDEAS
  7. Marianne Bertrand & Sendhil Mullainathan, 2001. "Do People Mean What They Say? Implications for Subjective Survey Data," American Economic Review, American Economic Association, vol. 91(2), pages 67-72, May. [Downloadable!] (restricted)
  8. Souleles, Nicholas S., 2002. "Consumer response to the Reagan tax cuts," Journal of Public Economics, Elsevier, vol. 85(1), pages 99-120, July. [Downloadable!] (restricted)
  9. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec.. [Downloadable!] (restricted)
  10. Poterba, James M, 1988. "Are Consumers Forward Looking? Evidence from Fiscal Experiments," American Economic Review, American Economic Association, vol. 78(2), pages 413-18, May. [Downloadable!] (restricted)
  11. repec:fth:harver:1435 is not listed on IDEAS
  12. Dr. Peter Kenning & Hilke Plassmann, 2004. "NeuroEconomics," Experimental 0412005, EconWPA. [Downloadable!]
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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. Alan J. Auerbach & William G. Gale, 2009. "Activist Fiscal Policy to Stabilize Economic Activity," NBER Working Papers 15407, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Blanchard, Olivier J & Cottarelli, Carlo & Spilimbergo, Antonio & Symansky, Steven, 2009. "Fiscal Policy for the Crisis," CEPR Discussion Papers 7130, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
    • Antonio Spilimbergo & Steve Symansky & Olivier Blanchard & Carlo Cottarelli, 2009. "Fiscal Policy For The Crisis," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 10(2), pages 26-32, 07. [Downloadable!]
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