A Boost in the Paycheck: Survey Evidence on Workers’ Response to the 2011 Payroll Tax Cuts
National Bureau of Economic Research (NBER)
Wilbert Van der Klaauw
Federal Reserve Bank of New York; IZA
Federal Reserve Bank of New York
January 1, 2013
FRB of New York Staff Report No. 592
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
Date posted: January 10, 2013
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