[a]bsent the rebate, the sharp decline in spending that is evident in aggregate data beginning in the third quarter of 2008 would have started in the second quarter.
Between April and December of 2008, about 120 million individuals in the United States received one-time stimulus payments totaling $96 billion. Those payments began phasing out at incomes above $75,000 a year, in part because it was argued that lower-income households were more likely to spend their rebates, so policies aimed at those households would be more likely to have stimulative effects.
In Household Response to the 2008 Tax Rebate: Survey Evidence and Aggregate Implications (NBER Working Paper No. 15421), co-authors Claudia Sahm, Matthew Shapiro, and Joel Slemrod find that what people say they did with their stimulus checks is "strongly at odds with the conventional wisdom." They estimate that the $96 billion spent on stimulus generated roughly one third that amount, or $32 billion, in extra consumer spending.
This study uses data from The Reuters/University of Michigan Survey of Consumers, a nationally representative survey based on 500 telephone interviews a month. The authors compare the results of their analysis to aggregate data on saving, spending, and debt, and to the results from other surveys. They conclude that their results are in accord with these data, and that "[a]bsent the rebate, the sharp decline in spending that is evident in aggregate data beginning in the third quarter of 2008 would have started in the second quarter, prior to the financial crisis of the fall."
Although the authors find that the stimulus program boosted consumer spending, they report that more than three-quarters of the overall survey respondents said that they would save the stimulus payments or use them to pay down debt. Of those under age 30, only 11 percent said they would mostly spend the payments. Of those over age 65, 26 percent said they would mostly spend the payments. These results are similar to those observed for the 2001 tax rebates.
People with incomes over $75,000 -- roughly the top third of the income distribution -- had "mostly-spend" rates about 7 percent higher than the average mostly-spend rate of lower income groups. For those with stock holdings in excess of $250,000, the mostly-spend rate was almost 40 percent; for those with stock valued between $100,000 and $250,000, that rate was 25 percent; for those with stock holdings between $50,000 and $100,000, the mostly-spend rate was 14 percent; and for those with stock holdings below that level, the mostly-spend rate was roughly 20 percent. These results do not support the conventional wisdom that younger, lower-income households are more likely to spend a one-time tax rebate. They are consistent with the possibility that moderate-stock-wealth households are more inclined to save because, unlike high-stock-wealth households, they have not yet met their savings goals.
-- Linda Gorman