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Heterogeneous Responses and Aggregate Impact of the 2001 Income Tax Rebates

  • Misra, Kanishka
  • Surico, Paolo

This paper estimates the heterogeneous responses to the 2001 income tax rebates across endogenously determined groups of American households. Around 45% of the sample saved the entire value of the rebate. Another 20%, with low income and liquid wealth, spent a significant amount. The largest propensity to consume, however, was associated with the remaining 35% of households, with higher income or liquid wealth. The estimated heterogeneity implies that the tax rebates added a 3.27% to aggregate non-durable consumption expenditure in the second half of 2001. The estimates of the homogeneous response model, in contrast, predict a 5.05% increase.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8306.

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Date of creation: Apr 2011
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Handle: RePEc:cpr:ceprdp:8306
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