Tax rebates don’t always work

Matt Shapiro and Joel Slemrod report:

Many households received income tax rebates in 2001 of $300 or $600. These rebates represented advance payments of the tax cut from the new 10 percent tax bracket. Based on a survey of a representative sample of households, this paper finds that only 22 percent of households receiving the rebate would spent it. Instead, they would either save it or use it to pay off debt. This very low rate of spending represents a striking break with past behavior, which would have suggested a much higher rate of spending. The low spending rate implies that the tax rebate provided a very limited stimulus to aggregate demand.

The pointer is from Angus.  Purely coincidentally, a moment later I read the following:

…both the White House and Congressional Democrats are leaning heavily
toward a combination similar to the one the administration turned to in
2001 as a recession-fighting tool. It would include a one-time tax
rebate for individuals and an immediate expansion in the deductions
that businesses take for investment in equipment. If Congress acts
quickly, checks could be in the hands of American taxpayers as early as

Hmm….By the way, here is the Elmendorf and Furman paper on fiscal stimulus.

Addendum: Don’t forget Alex’s post on this.  Mark Thoma and Bruce Bartlett are here, and as you might expect Greg Mankiw asks the correct pointed question.


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