NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Reaction of Consumer Spending and Debt to Tax Rebates -- Evidence from Consumer Credit Data

Sumit Agarwal, Chunlin Liu, Nicholas S. Souleles

NBER Working Paper No. 13694
Issued in December 2007
NBER Program(s):   EFG   PE

We use a new panel dataset of credit card accounts to analyze how consumers 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.

download in pdf format
   (294 K)

email paper

This paper is available as PDF (294 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w13694

Published: Sumit Agarwal & Chunlin Liu & Nicholas S. Souleles, 2007. "The Reaction of Consumer Spending and Debt to Tax Rebates-Evidence from Consumer Credit Data," Journal of Political Economy, University of Chicago Press, vol. 115(6), pages 986-1019, December. citation courtesy of

Users who downloaded this paper also downloaded these:
Shapiro and Slemrod w8672 Consumer Response to Tax Rebates
Shapiro and Slemrod w14753 Did the 2008 Tax Rebates Stimulate Spending?
Johnson, Parker, and Souleles w10784 Household Expenditure and the Income Tax Rebates of 2001
Parker, Souleles, Johnson, and McClelland w16684 Consumer Spending and the Economic Stimulus Payments of 2008
Blinder w0283 Temporary Income Taxes and Consumer Spending
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us