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Balance-Sheet Households and Fiscal Stimulus: Lessons from the Payroll Tax Cut and Its Expiration

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  • Claudia R. Sahm
  • Matthew D. Shapiro
  • Joel Slemrod

Abstract

Balance-sheet repair drove the response of a significant fraction of households to fiscal stimulus following the Great Recession. By combining survey, behavioral, and time-series evidence on the 2011 payroll tax cut and its expiration in 2013, this papers identifies and analyzes households who smooth debt repayment. These “balance-sheet households” are as prevalent as “permanent-income households,” who smooth consumption in response to the temporary tax cut, and outnumber “constrained households,” who temporarily boost spending. The asymmetric spending response of balance-sheet households poses challenges to standard models, but nonetheless appears important for understanding individual and aggregate responses to fiscal stimulus.

Suggested Citation

  • Claudia R. Sahm & Matthew D. Shapiro & Joel Slemrod, 2015. "Balance-Sheet Households and Fiscal Stimulus: Lessons from the Payroll Tax Cut and Its Expiration," NBER Working Papers 21220, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:21220
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    References listed on IDEAS

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    1. John Sabelhaus & Samuel Ackerman, 2012. "The effect of self-reported transitory income shocks on household spending," Finance and Economics Discussion Series 2012-64, Board of Governors of the Federal Reserve System (US).
    2. Nicholas S. Souleles & Jonathan A. Parker & David S. Johnson, 2006. "Household Expenditure and the Income Tax Rebates of 2001," American Economic Review, American Economic Association, vol. 96(5), pages 1589-1610, December.
    3. Claudia R. Sahm & Matthew D. Shapiro & Joel Slemrod, 2010. "Household Response to the 2008 Tax Rebate: Survey Evidence and Aggregate Implications," NBER Chapters,in: Tax Policy and the Economy, Volume 24, pages 69-110 National Bureau of Economic Research, Inc.
    4. Tullio Jappelli & Luigi Pistaferri, 2014. "Fiscal Policy and MPC Heterogeneity," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(4), pages 107-136, October.
    5. Kanishka Misra & Paolo Surico, 2014. "Consumption, Income Changes, and Heterogeneity: Evidence from Two Fiscal Stimulus Programs," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(4), pages 84-106, October.
    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.
    7. Bracha, Anat & Cooper, Daniel, 2014. "Asymmetric responses to income changes: The payroll tax increase versus tax refund in 2013," Economics Letters, Elsevier, vol. 124(3), pages 534-538.
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    Cited by:

    1. Sumit Agarwal & Souphala Chomsisengphet & Neale Mahoney & Johannes Ströbel, 2015. "Do Banks Pass Through Credit Expansions? The Marginal Profitability of Consumer Lending During the Great Recession," CESifo Working Paper Series 5521, CESifo Group Munich.
    2. Tullio Jappelli & Luigi Pistaferri, 2018. "Reported MPC and Unobserved Heterogeneity," CSEF Working Papers 505, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    3. Sumit Agarwal & Souphala Chomsisengphet & Neale Mahoney & Johannes Stroebel, 2015. "Do Banks Pass Through Credit Expansions to Consumers Who Want to Borrow?," NBER Working Papers 21567, National Bureau of Economic Research, Inc.
    4. Christelis, Dimitris & Georgarakos, Dimitris & Jappelli, Tullio & Pistaferri, Luigi & Van Rooij, Maarten, 2017. "Asymmetric Consumption Effects of Transitory Income Shocks," CEPR Discussion Papers 12025, C.E.P.R. Discussion Papers.
    5. Jorge Miranda-Pinto & Daniel Murphy & Eric Young & Kieran Walsh, 2018. "Debt Burdens and the Interest Rate Response to Fiscal Stimulus: Theory and Cross-Country Evidence," 2018 Meeting Papers 936, Society for Economic Dynamics.
    6. repec:ecb:ecbrbu:2018:0044:1 is not listed on IDEAS

    More about this item

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • E21 - Macroeconomics and Monetary Economics - - 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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