Household Response to the 2008 Tax Rebate: Survey Evidence and Aggregate Implications

By Claudia R. Sahm, M. Shapiro, Joel B. Slemrod. Tax Policy and the Economy, 2010

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Only about one‐fifth of respondents in the Reuters/University of Michigan survey report that the 2008 tax rebates led them to mostly increase spending, whereas over half said it would lead them to mostly pay off debt. Of those in the mostly‐spend category, the response was swift, with over 80% reporting increasing their spending within 3 months of receiving their rebate. Older households, households with higher wealth and higher income, and those expecting future income growth were generally more likely to spend the rebates. A review of other surveys confirms the general pattern of results and suggests that small changes in survey design do not have a major effect on the distribution of responses. The distribution of survey answers corresponds to an aggregate marginal propensity to consume (MPC) after 1 year of about one‐third. The paper combines this survey‐based estimate of the MPC and the survey‐based estimate of the timing of spending to show that the rebates help explain the aggregate movements in saving, spending, and debt in 2008. Because the rebate was large and was distributed over a short period, it had a nontrivial effect on total spending in the second and third quarters of 2008. Nonetheless, the results imply that the rebates provided only a modest stimulus to spending per dollar of rebate.

Subfields: Accounting, Economics and Econometrics, Gender Studies

View Paper: https://www.semanticscholar.org/paper/465f10e6f5e7998e1e3e485b378227b5002748e2

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Citations in the corpus

Asymmetric Consumption Effects of Transitory Income Shocks* (2019, background): “…which measure the responses to actual or hypothetical income changes are the third approach.1 For instance, Shapiro and Slemrod (1995; 2003) and Sahm et al. (2010; 2015) asked US households to report how their consumption changed in response to tax rebates, tax credits, and payroll tax changes…”
The Economic Stimulus Payments of 2008 and the aggregate demand for consumption (2014, unknown): “Finally Bureau of Labor Statistics (2009), Shapiro and Slemrod (2009), and Sahm, Shapiro, and Slemrod (2010) report that 20 – 30 percent of households report that they mainly spent their ESPs, numbers that are consistent with the present paper’s findings.”
Fiscal Policy and MPC Heterogeneity (2014, unknown): “Acknowledgements.”