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A boost in the paycheck: survey evidence on workers’ response to the 2011 payroll tax cuts

  • Grant Graziani
  • Wilbert Van der Klaauw
  • Basit Zafar

This paper presents new survey evidence on workers’ response to the 2011 payroll tax cuts. While workers intended to spend 10 to 18 percent of their tax-cut income, they reported actually spending 28 to 43 percent of the funds. This is higher than estimates from studies of recent tax cuts, and arguably a consequence of the design of the 2011 tax cuts. The shift to greater consumption than intended is largely unexplained by present-bias or unanticipated shocks, and is likely a consequence of mental accounting. We also use data from a complementary survey to understand the heterogeneous tax-cut response.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 592.

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Date of creation: 2013
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Handle: RePEc:fip:fednsr:592
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