Abstract

http://ssrn.com/abstract=2197793
 


 



A Boost in the Paycheck: Survey Evidence on Workers’ Response to the 2011 Payroll Tax Cuts


Grant Graziani


National Bureau of Economic Research (NBER)

Wilbert Van der Klaauw


Federal Reserve Bank of New York; IZA

Basit Zafar


Federal 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 series


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Date posted: January 10, 2013  

Suggested Citation

Graziani, Grant and van der Klaauw, Wilbert and Zafar, Basit, A Boost in the Paycheck: Survey Evidence on Workers’ Response to the 2011 Payroll Tax Cuts (January 1, 2013). FRB of New York Staff Report No. 592. Available at SSRN: http://ssrn.com/abstract=2197793 or http://dx.doi.org/10.2139/ssrn.2197793

Contact Information

Grant Graziani
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
H. Wilbert Van der Klaauw (Contact Author)
Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045
United States
212-720-5916 (Phone)
212-720-1844 (Fax)
IZA ( email )
Basit Zafar
Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045
United States
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