Working Paper: CEPR ID: DP8306
Authors: Kanishka Misra; Paolo Surico
Abstract: This paper estimates the heterogeneous responses to the 2001 income tax rebates across endogenously determined groups of American households. Around 45% of the sample saved the entire value of the rebate. Another 20%, with low income and liquid wealth, spent a significant amount. The largest propensity to consume, however, was associated with the remaining 35% of households, with higher income or liquid wealth. The estimated heterogeneity implies that the tax rebates added a 3.27% to aggregate non-durable consumption expenditure in the second half of 2001. The estimates of the homogeneous response model, in contrast, predict a 5.05% increase.
Keywords: heterogeneity; propensity to consume; fiscal policy
JEL Codes: D91; E21; E62; H31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 2001 income tax rebates (H20) | household consumption (D10) |
| 2001 income tax rebates (H20) | saving behavior of households (D14) |
| 2001 income tax rebates (H20) | liquidity constraints for low-income households (G51) |
| heterogeneous response model (C21) | lower aggregate impact on consumption (E21) |
| homogeneous response model (C21) | higher predicted impact on consumption (D12) |