Household Response to the 2008 Tax Rebate: Survey Evidence and Aggregate Implications

50 Pages Posted: 26 Oct 2009 Last revised: 22 Aug 2010

See all articles by Claudia Sahm

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)

Date Written: October 2009

Abstract

Only about one-fifth of respondents in the Reuters/University of Michigan survey report that the 2008 tax rebates led them to mostly increase spending, while over half said it would lead them to mostly pay off debt. Of those in the mostly-spend category, the response was swift, with over 80 percent reporting increasing their spending within three months of receiving their rebate. Older households, households with higher wealth and higher income, and those expecting future income growth were generally more likely to spend the rebates. A review of other surveys confirms the general pattern of results and suggests that small changes in survey design do not have a major effect on the distribution of responses.The distribution of survey answers corresponds to an aggregate MPC after one year of about one-third. The paper combines this survey-based estimate of the MPC and the survey-based estimate of the timing of spending to show that the rebates help explain the aggregate movements in saving, spending, and debt in 2008. Because the rebate was large and distributed over a short period, it had a non-trivial effect on total spending in the second and third quarters of 2008. Nonetheless, the results imply that the rebates provided only a modest stimulus to spending per dollar of rebate.

Suggested Citation

Sahm, Claudia and Shapiro, Matthew D. and Slemrod, Joel B., Household Response to the 2008 Tax Rebate: Survey Evidence and Aggregate Implications (October 2009). NBER Working Paper No. w15421. Available at SSRN: https://ssrn.com/abstract=1493013

Claudia Sahm

Federal Reserve Board ( email )

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Matthew D. Shapiro (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

and Survey Research Center
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National Bureau of Economic Research (NBER) ( email )

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Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business ( email )

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United States
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734-763-4032 (Fax)

National Bureau of Economic Research (NBER)

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