Goethe-Universität Frankfurt am Main >
Center for Financial Studies (CFS), Universität Frankfurt a. M. >
CFS Working Paper Series, Universität Frankfurt a. M. >
Please use this identifier to cite or link to this item:
| || |
|Title:||The reaction of consumer spending and debt to tax rebates: Evidence from consumer credit data |
Mitchell, Olivia S.
|Issue Date:||2007 |
|Series/Report no.:||CFS Working Paper 2008/01|
|Abstract:||We use a new panel dataset of credit card accounts to analyze how consumer responded to the 2001 Federal income tax rebates. We estimate the monthly response of credit card payments, spending, and debt, exploiting the unique, randomized timing of the rebate disbursement. We find that, on average, consumers initially saved some of the rebate, by increasing their credit card payments and thereby paying down debt. But soon afterwards their spending increased, counter to the canonical Permanent-Income model. Spending rose most for consumers who were initially most likely to be liquidity constrained, whereas debt declined most (so saving rose most) for unconstrained consumers. More generally, the results suggest that there can be important dynamics in consumers response to lumpy increases in income like tax rebates, working in part through balance sheet (liquidity) mechanisms.|
Consumer Balance Sheets
|Persistent Identifier of the first edition:||urn:nbn:de:hebis:30-52350|
|Document Type:||Working Paper|
|Appears in Collections:||CFS Working Paper Series, Universität Frankfurt a. M.|
Download bibliographical data as:
Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.