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http://ssrn.com/abstract=1895524
 
 

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Check in the Mail or More in the Paycheck: Does the Effectiveness of Fiscal Stimulus Depend on How it is Delivered?


Claudia Sahm


Federal Reserve Board

Matthew D. Shapiro


University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Joel B. Slemrod


University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research (NBER)

July 26, 2010

FEDS Working Paper No. 2010-40

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.

Number of Pages in PDF File: 49

Keywords: Fiscal stimulus, tax rebates, marginal propensity to consume, survey responses

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Date posted: July 27, 2011  

Suggested Citation

Sahm, Claudia and Shapiro, Matthew D. and Slemrod, Joel B., Check in the Mail or More in the Paycheck: Does the Effectiveness of Fiscal Stimulus Depend on How it is Delivered? (July 26, 2010). FEDS Working Paper No. 2010-40. Available at SSRN: http://ssrn.com/abstract=1895524 or http://dx.doi.org/10.2139/ssrn.1895524

Contact Information

Claudia Sahm (Contact Author)
Federal Reserve Board ( email )
20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2291 (Phone)
Matthew D. Shapiro
University of Michigan at Ann Arbor - Department of Economics ( email )
and Survey Research Center
611 Tappan Street
Ann Arbor, MI 48109-1220
United States
313-764-5419 (Phone)
313-764-2769 (Fax)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
313-764-5419 (Phone)
313-764-2769 (Fax)
Joel B. Slemrod
University of Michigan, Stephen M. Ross School of Business ( email )
701 Tappan Street
Room A2120
Ann Arbor, MI 48109-1234
United States
734-936-3914 (Phone)
734-763-4032 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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