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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

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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Bibliographic Info

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

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  1. 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.
  2. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Discussion Papers 96-01, University of Copenhagen. Department of Economics.
  3. Matthew D. Shapiro & Joel Slemrod, 2001. "Consumer Response to Tax Rebates," NBER Working Papers 8672, National Bureau of Economic Research, Inc.
  4. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  5. Sendhil Mullainathan & Marianne Bertrand, 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.
  6. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2000. "Do the rich save more?," Finance and Economics Discussion Series 2000-52, Board of Governors of the Federal Reserve System (U.S.).
  7. Sumit Agarwal & Chunlin Liu & Nicholas S. Souleles, 2007. "The Reaction of Consumer Spending and Debt to Tax Rebates -- Evidence from Consumer Credit Data," NBER Working Papers 13694, National Bureau of Economic Research, Inc.
  8. 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.
  9. Parker, J.A., 1997. "The Reaction of Household Consumption to Predictable Changes in Payroll Tax Rates," Working papers 9724, Wisconsin Madison - Social Systems.
  10. repec:rus:hseeco:95340 is not listed on IDEAS
  11. repec:fth:harver:1435 is not listed on IDEAS
  12. Souleles, Nicholas S., 2002. "Consumer response to the Reagan tax cuts," Journal of Public Economics, Elsevier, vol. 85(1), pages 99-120, July.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The Bush fiscal stimulus and Ricardo
    by Economic Logician in Economic Logic on 2008-01-21 08:08:00
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Cited by:
  1. Glenn Follette & Byron Lutz, 2010. "Fiscal policy in the United States: automatic stabilizers, discretionary fiscal policy actions, and the economy," Finance and Economics Discussion Series 2010-43, Board of Governors of the Federal Reserve System (U.S.).
  2. Antonio Spilimbergo & Steven A. Symansky & Carlo Cottarelli & Olivier J. Blanchard, 2009. "Fiscal Policy for the Crisis," IMF Staff Position Notes 2008/01, International Monetary Fund.
    • 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.
  3. Norbert Michel & Nazneen Ahmad, 2012. "Consumer response to child tax credit," Empirical Economics, Springer, vol. 43(3), pages 1199-1214, December.
  4. Jonathan A. Parker & Nicholas S. Souleles & David S. Johnson & Robert McClelland, 2011. "Consumer Spending and the Economic Stimulus Payments of 2008," NBER Working Papers 16684, National Bureau of Economic Research, Inc.
  5. Alan J. Auerbach & William G. Gale, 2009. "Activist Fiscal Policy to Stabilize Economic Activity," NBER Working Papers 15407, National Bureau of Economic Research, Inc.
  6. 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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  1. Economic Logic blog

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