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Consumer Response to Tax Rebates

  • Matthew D. Shapiro
  • Joel Slemrod

Many households received income tax rebates in 2001 of $300 or $600. These rebates represented advance payments of the tax cut from the new 10 percent tax bracket. Based on a survey of a representative sample of households, this paper finds that only 22 percent of households receiving the rebate would spent it. Instead, they would either save it or use it to pay off debt. This very low rate of spending represents a striking break with past behavior, which would have suggested a much higher rate of spending. The low spending rate implies that the tax rebate provided a very limited stimulus to aggregate demand.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8672.

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Date of creation: Dec 2001
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Publication status: published as Shapiro, Matthew D. and Joel Slemrod. "Consumer Response To Tax Rebates," American Economic Review, 2003, v93(1,Mar), 381-396.
Handle: RePEc:nbr:nberwo:8672
Note: EFG PE
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  2. Jonathan A. Parker, 1999. "The Reaction of Household Consumption to Predictable Changes in Social Security Taxes," American Economic Review, American Economic Association, vol. 89(4), pages 959-973, September.
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  15. Souleles, Nicholas S., 2000. "College tuition and household savings and consumption," Journal of Public Economics, Elsevier, vol. 77(2), pages 185-207, August.
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