Working Paper: NBER ID: w21220
Authors: 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.
Keywords: Fiscal Stimulus; Payroll Tax Cut; Household Behavior; Balance Sheet Repair
JEL Codes: C83; E21; E62; H31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| payroll tax cut (H29) | household spending increase (D19) |
| payroll tax cut (H29) | balance-sheet households repair balance sheets (G51) |
| payroll tax cut expiration (H29) | household spending decrease (D12) |
| balance-sheet households (D14) | pullback in spending (H61) |
| household spending decrease (D12) | slow recovery in consumer spending (D12) |