The reaction of consumer spending and debt to tax rebates – evidence from consumer credit data

We use a new panel dataset of credit card accounts to analyze how consumer responded to the 2001 Federal income tax rebates. We estimate the monthly response of credit card payments, spending, and debt, exploiting the un
We use a new panel dataset of credit card accounts to analyze how consumer responded to the 2001 Federal income tax rebates. We estimate the monthly response of credit card payments, spending, and debt, exploiting the unique, randomized timing of the rebate disbursement. We find that, on average, consumers initially saved some of the rebate, by increasing their credit card payments and thereby paying down debt. But soon afterwards their spending increased, counter to the canonical Permanent-Income model. Spending rose most for consumers who were initially most likely to be liquidity constrained, whereas debt declined most (so saving rose most) for unconstrained consumers. More generally, the results suggest that there can be important dynamics in consumers’ response to “lumpy” increases in income like tax rebates, working in part through balance sheet (liquidity) mechanisms.
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Metadaten
Author:Sumit Agarwal, Chunlin Liu, Nicholas Souleles
URN:urn:nbn:de:hebis:30-52350
Parent Title (German):CFS working paper series ; 2008, 01
Series (Serial Number):CFS working paper series (2008, 01)
Document Type:Working Paper
Language:English
Date of Publication (online):2008/01/29
Year of first Publication:2008
Publishing Institution:Univ.-Bibliothek Frankfurt am Main
Release Date:2008/01/29
Tag:Consumption ; Fiscal Policy ; Life-Cycle Model ; Liquidity Constraints ; Permanent-Income Hypothesis ; Saving ; Tax Cuts ; Tax Rebates ; Windfalls
HeBIS PPN:195113780
Institutes:Center for Financial Studies (CFS)
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:D91 Intertemporal Consumer Choice; Life Cycle Models and Saving
E21 Consumption; Saving; Wealth
E51 Money Supply; Credit; Money Multipliers
E62 Fiscal Policy
G2 Financial Institutions and Services
H31 Household
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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