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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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  1. Sahm, Claudia R. & Shapiro, Matthew D. & Slemrod, Joel, 2011. "Check in the mail or more in the paycheck: does the effectiveness of fiscal stimulus depend on how it is delivered?," Working Paper Series 1298, European Central Bank.
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  11. Sumit Agarwal & Chunlin Liu & Nicholas S. Souleles, 2007. "The reaction of consumer spending and debt to tax rebates – evidence from consumer credit data," Working Paper Series WP-07-10, Federal Reserve Bank of Chicago.
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  14. 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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  16. H. M. Shefrin & Richard Thaler, 1977. "An Economic Theory of Self-Control," NBER Working Papers 0208, National Bureau of Economic Research, Inc.
  17. Julia Lynn Coronado & Joseph P. Lupton & Louise M. Sheiner, 2005. "The household spending response to the 2003 tax cut: evidence from survey data," Finance and Economics Discussion Series 2005-32, Board of Governors of the Federal Reserve System (U.S.).
  18. Olivier Armantier & W�ndi Bruine de Bruin & Simon Potter & Giorgio Topa & Wilbert van der Klaauw & Basit Zafar, 2013. "Measuring Inflation Expectations," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 273-301, 05.
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