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AER - Previous Issues
 AER - December 2006

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American Economic Review

Vol. 96, No. 5, December 2006

Household Expenditure and the Income Tax Rebates of 2001
David S. Johnson, Jonathan A. Parker and Nicholas S. Souleles

Article Citation
Johnson, David S., Jonathan A. Parker, and Nicholas S. Souleles 2006. "Household Expenditure and the Income Tax Rebates of 2001." American Economic Review, 96(5): 1589–1610.
DOI:10.1257/aer.96.5.1589

Abstract
Using questions expressly added to the Consumer Expenditure Survey, we estimate the change in consumption expenditures caused by the 2001 federal income tax rebates and test the permanent income hypothesis. We exploit the unique, randomized timing of rebate receipt across households. Households spent 20 to 40 percent of their rebates on nondurable goods during the three-month period in which their rebates arrived, and roughly two-thirds of their rebates cumulatively during this period and the subsequent three-month period. The implied effects on aggregate consumption demand are substantial. Consistent with liquidity constraints, responses are larger for households with low liquid wealth or low income. (JEL D12, D91, E21, E62, H24, H31)

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Authors
Johnson, David S.
Parker, Jonathan A.
Souleles, Nicholas S.