Balance-Sheet Households and Fiscal Stimulus: Lessons from the Payroll Tax Cut and Its Expiration

Claudia Sahm, Matthew Shapiro and Joel Slemrod

No 2015-37, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Balance-sheet repair drove the response of a significant fraction of households to fiscal stimulus following the Great Recession. By combining survey, behavioral, and time-series evidence on the 2011 payroll tax cut and its expiration in 2013, this papers identifies and analyzes households who smooth debt repayment. These \"balance-sheet households\" are as prevalent as \"permanent-income households,\" who smooth consumption in response to the temporary tax cut, and outnumber \"constrained households,\" who temporarily boost spending. The asymmetric spending response of balance-sheet households poses challenges to standard models, but nonetheless appears important for understanding individual and aggregate responses to fiscal stimulus.

Keywords: Fiscal stimulus; balance sheets; marginal propensity to consume; payroll tax; survey responses (search for similar items in EconPapers)
Pages: 35 pages
Date: 2015-05-20
New Economics Papers: this item is included in nep-pbe
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Citations: View citations in EconPapers (28)

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http://www.federalreserve.gov/econresdata/feds/2015/files/2015037pap.pdf Full text (application/pdf)
http://dx.doi.org/10.17016/FEDS.2015.037 http://dx.doi.org/10.17016/FEDS.2015.037 (application/pdf)

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Working Paper: Balance-Sheet Households and Fiscal Stimulus: Lessons from the Payroll Tax Cut and Its Expiration (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2015-37

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