Working Paper: NBER ID: w8672
Authors: Matthew D. Shapiro; Joel Slemrod
Abstract: 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.
Keywords: tax rebates; consumer spending; fiscal policy
JEL Codes: E21; E65; C42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Receipt of tax rebates (H20) | Limited increase in spending (H61) |
| Perceived permanence of the rebate (D15) | Spending behavior (D12) |
| Liquidity constraints (E51) | Heterogeneous spending responses to tax rebates (H31) |
| Consumer beliefs about permanence of tax cut (H31) | Spending behavior (D12) |
| Limited increase in spending (H61) | Aggregate demand (E00) |