Did the Economic Stimulus Payments of 2008 Reduce Labor Supply? Evidence from Quantile Panel Data Estimation

While the literature has found evidence that tax rebates and economic stimulus payments increase short-term consumer spending, the literature has ignored the possibility that household labor supply may also respond. This paper exploits the randomized timing of receipt of the 2008 economic stimulus payments and examine changes in household labor earnings by month in the Survey of Income and Program Participation. Because it is unlikely that the effect is uniform throughout the earnings distribution, it estimates quantile treatment effects. The empirical strategy requires conditioning on household fixed effects so it introduces a new instrumental variables quantile regression technique for panel data (QRPD) which maintains the nonseparable disturbance term commonly associated with quantile estimation. This property is crucial to estimating the parameters of interest and distinguishes itself from many of the quantile panel data estimators in the literature which rely on additive fixed effects. It finds that tax rebate receipt has significant impacts on labor supply.