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Household Expenditure and the Income Tax Rebates of 2001 Author info | Abstract | Publisher info | Download info | Related research | Statistics David S. Johnson (Division of Price and Index Number Research, Bureau of Labor Statistics)
Jonathan A. Parker (Princeton University)
Nicholas S. Souleles (Wharton School, University of Pennsylvania)
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Under the Economic Growth and Tax Relief Reconciliation Act of 2001, most U.S. taxpayers received a tax rebate between July and September, 2001. The week in which the rebate was mailed was based on the second-to-last digit of the taxpayer's Social Security number, a digit that is effectively randomly assigned. Using special questions about the rebates added to the Consumer Expenditure Survey, we exploit this historically unique experiment to measure the change in consumption expenditures caused by receipt of the rebate and to test the Permanent Income Hypothesis and related models. We find that households spent about 20-40 percent of their rebates on non-durable goods during the three-month period in which their rebates were received, and roughly another third of their rebates during the subsequent three-month period. The implied effects on aggregate consumption demand are significant. The estimated responses are largest for households with relatively low liquid wealth and low income, consistent with liquidity constraints.
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Paper provided by Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics. in its series Working Papers with number
136.
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Date of creation: Aug 2004Date of revision:
Handle: RePEc:pri:wwseco:136Contact details of provider: Postal: Robertson Hall, Princeton, NJ 08544-1013 Phone: (609) 258-4800 Web page: http://webdb.princeton.edu/dbtoolbox/query.asp?qname=Papers_Econ_IndexWRecent More information through EDIRC
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Keywords: consumption saving Life-Cycle model Permanent-Income Hypothesis liquidity constraints fiscal policy tax cuts tax rebates windfalls Other versions of this item:
Find related papers by JEL classification: E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
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