Did the 2008 Tax Rebates Stimulate Spending?
Only one-fifth of respondents to a rider on the University of Michigan Survey Research Center's Monthly Survey said that the 2008 tax rebates would lead them to mostly increase spending. Almost half said the rebate would mostly lead them to pay off debt, while about a third saying it would lead them mostly to save more. The survey responses imply that the aggregate propensity to spend from the rebate was about one-third, and that there would not be substantially more spending as a lagged effect of the rebates. Because of the low spending propensity, the rebates in 2008 provided low "bang for the buck" as economic stimulus. Putting cash into the hands of the consumers who use it to save or pay off debt boosts their well-being, but it does not necessarily make them spend. Low-income individuals were particularly likely to use the rebate to pay off debt.
We are grateful to Richard Curtin for advice in the design of the survey instrument, to Jonathan Parker and Nicholas Souleles for valuable discussion, and to Christian Broda and Jonathan Parker for providing a tabulation based on research in progress. Shapiro gratefully acknowledges the funding of National Institute on Aging grant 2-P01-AG10179 for partially supporting the data collection. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Matthew D. Shapiro & Joel Slemrod, 2009. "Did the 2008 Tax Rebates Stimulate Spending?," American Economic Review, American Economic Association, vol. 99(2), pages 374-79, May. citation courtesy of