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

50 Pages Posted: 10 Jan 2013  

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

Date Written: January 1, 2013

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.

Keywords: tax cuts, consumption, liquidity constraints, mental accounts, permanent-income hypothesis, present-bias

JEL Classification: C83, D91, E21, E62, E65

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: https://ssrn.com/abstract=2197793 or http://dx.doi.org/10.2139/ssrn.2197793

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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