Household Expenditure and the Income Tax Rebates of 2001
American Economic Review
vol. 96,
no. 5, December 2006
(pp. 1589-1610)
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)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.96.5.1589Additional Materials
JEL Classification
- D12 Consumer Economics: Empirical Analysis
- D91 Intertemporal Household Choice; Life Cycle Models and Saving
- E21 Macroeconomics: Consumption; Saving; Wealth
- E62 Fiscal Policy
- H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
- H31 Fiscal Policies and Behavior of Economic Agents: Household