Heterogeneous Responses and Aggregate Impact of the 2001 Income Tax Rebates

Paolo Surico and Kanishka Misra

No 8306, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper estimates the heterogeneous responses to the 2001 income tax rebates across endogenously determined groups of American households. Around 45% of the sample saved the entire value of the rebate. Another 20%, with low income and liquid wealth, spent a significant amount. The largest propensity to consume, however, was associated with the remaining 35% of households, with higher income or liquid wealth. The estimated heterogeneity implies that the tax rebates added a 3.27% to aggregate non-durable consumption expenditure in the second half of 2001. The estimates of the homogeneous response model, in contrast, predict a 5.05% increase.

Keywords: Heterogeneity; Propensity to consume; Fiscal policy (search for similar items in EconPapers)
JEL-codes: D91 E21 E62 H31 (search for similar items in EconPapers)
Date: 2011-04
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Citations: View citations in EconPapers (13)

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