Household Expenditure and the Income Tax Rebates of 2001

38 Pages Posted: 20 Sep 2004 Last revised: 4 Oct 2004

See all articles by David Johnson

David Johnson

Bureau of Labor Statistics

Jonathan A. Parker

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Nicholas S. Souleles

University of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2004

Abstract

Under the Economic Growth and Tax Relief Reconciliation Act of 2001, most U.S. taxpayers received a tax rebate between July and September, 2001. The week in which the rebate was mailed was based on the second-to-last digit of the taxpayer's Social Security number, a digit that is effectively randomly assigned. Using special questions about the rebates added to the Consumer Expenditure Survey, we exploit this historically unique experiment to measure the change in consumption expenditures caused by receipt of the rebate and to test the Permanent Income Hypothesis and related models. We find that households spent about 20-40 percent of their rebates on non-durable goods during the three-month period in which their rebates were received, and roughly another third of their rebates during the subsequent three-month period. The implied effects on aggregate consumption demand are significant. The estimated responses are largest for households with relatively low liquid wealth and low income, consistent with liquidity constraints.

Suggested Citation

Johnson, David S. and Parker, Jonathan A. and Souleles, Nicholas S., Household Expenditure and the Income Tax Rebates of 2001 (September 2004). NBER Working Paper No. w10784. Available at SSRN: https://ssrn.com/abstract=593468

David S. Johnson

Bureau of Labor Statistics ( email )

2 Massachusetts Avenue, NE
Room 3105
Washington, DC 20212
United States

Jonathan A. Parker (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA
United States
617-253-7218 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Nicholas S. Souleles

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-898-9466 (Phone)
215-898-6200 (Fax)

HOME PAGE: http://finance.wharton.upenn.edu/~souleles

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
54
Abstract Views
1,749
rank
19,341
PlumX Metrics