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A Boost in the Paycheck: Survey Evidence on Workers’ Response to the 2011 Payroll Tax CutsGrant GrazianiNational Bureau of Economic Research (NBER) Wilbert Van der KlaauwFederal Reserve Bank of New York; University of North Carolina (UNC) at Chapel Hill - Department of Economics Basit ZafarFederal Reserve Bank of New York January 1, 2013 FRB of New York Staff Report No. 592 Abstract: This paper presents new survey evidence on workers’ response to the 2011 payroll tax cuts. While workers intended to spend 10 to 18 percent of their tax-cut income, they reported actually spending 28 to 43 percent of the funds. This is higher than estimates from studies of recent tax cuts, and arguably a consequence of the design of the 2011 tax cuts. The shift to greater consumption than intended is largely unexplained by present-bias or unanticipated shocks, and is likely a consequence of mental accounting. We also use data from a complementary survey to understand the heterogeneous tax-cut response.
Number of Pages in PDF File: 50 Keywords: tax cuts, consumption, liquidity constraints, mental accounts, permanent-income hypothesis, present-bias JEL Classification: C83, D91, E21, E62, E65 working papers seriesDate posted: January 10, 2013Suggested CitationContact Information
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