Household Expenditure and the Income Tax Rebates of 2001
Johnson, David S.,
Jonathan A. Parker, and
Nicholas S. Souleles. 2006. "Household Expenditure and the Income Tax Rebates of 2001."
American Economic Review,
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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Johnson, David S.
Parker, Jonathan A.
Souleles, Nicholas S.