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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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File URL: http://www.nber.org/papers/w8672.pdf
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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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  1. David W. Wilcox, 1987. "Social security benefits, consumption expenditure, and the life cycle hypothesis," Working Paper Series / Economic Activity Section 78, Board of Governors of the Federal Reserve System (U.S.).
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  10. Matthew D. Shapiro & Joel Slemrod, 1993. "Consumer Response to the Timing of Income: Evidence from a Change in Tax Withholding," NBER Working Papers 4344, National Bureau of Economic Research, Inc.
  11. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
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  18. Martin Browning & Annamaria Lusardi, 1995. "Household Saving: Micro Theories and Micro Facts," Department of Economics Working Papers 1995-02, McMaster University.
  19. repec:fth:harver:1435 is not listed on IDEAS
  20. Stephen Zeldes, . "Consumption and Liquidity Constraints: An Empirical Investigation," Rodney L. White Center for Financial Research Working Papers 24-85, Wharton School Rodney L. White Center for Financial Research.
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