Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153732
Authors: 
Sahm, Claudia R.
Shapiro, Matthew D.
Slemrod, Joel
Year of Publication: 
2011
Series/Report no.: 
ECB Working Paper 1298
Abstract: 
Recent fiscal policies have aimed to stimulate household spending. In 2008, most households received one-time economic stimulus payments. In 2009, most working households received the Making Work Pay tax credit in the form of reduced withholding; other households, mainly retirees, received one-time payments. This paper quantifies the spending response to these different policies and examines whether the spending response differed according to whether the stimulus was delivered as a one-time payment or as a flow of payments in the form of reduced withholding. Based on responses from a representative sample of households in the Thomson Reuters/University of Michigan Surveys of Consumers, the paper finds that the reduction in withholding led to a substantially lower rate of spending than the one-time payments. Specifically, 25 percent of households reported that the one-time economic stimulus payment in 2008 led them to mostly increase their spending while only 13 percent reported that the extra pay from the lower withholding in 2009 led them to mostly increase their spending. The paper uses several approaches to isolate the effect of the delivery mechanism from the changing aggregate and individual conditions. Responses to a hypothetical stimulus in 2009, examination of “free responses” concerning differing responses to the policies, and regression analysis controlling for individual economic conditions and demographics all support the primary importance of the income delivery mechanism in determining the spending response to the policies.
Subjects: 
Fiscal Stimulus
Marginal Propensity to Consume
survey responses
tax rebates
JEL: 
H31
E62
C83
Document Type: 
Working Paper

Files in This Item:
File
Size
993.55 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.