Consumer Spending and the After-Tax Real Interest Rate

N. Gregory Mankiw

No 1991, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper examines the interaction between consumer durable goods and consumer non-durable goods in determining the responsiveness of total expenditure to the after-tax real interest rate. The introduction of consumer durables into the consumer's decision problem can have important effects on the interest elasticity of total spending. The channel highlighted here might be called the "user cost effect," in that the after-tax interest rate enters the implicit user cost of consumer durable goods. Even if a consumer has a one-period planning horizon, possibly because of a binding borrowing constraint, the user cost effect may nonetheless make his spending highly interest sensitive. Finally, the paper examines the response of the level and composition of consumer spending to the high real interest rates experienced in the early 1980s.

Date: 1986-08
Note: PE
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Citations: View citations in EconPapers (9)

Published as Mankiw, N. Gregory."Consumer Spending and the After-Tax Real Interest Rate." The Effects of Taxation on Capital Accumulation, ed by Martin Feldstein. Chicago: UCP, 1987.
Published as Consumer Spending and the After-Tax Real Interest Rate , N. Gregory Mankiw. in Taxes and Capital Formation , Feldstein. 1987
Published as Consumer Spending and the After-Tax Real Interest Rate , N. Gregory Mankiw. in The Effects of Taxation on Capital Accumulation , Feldstein. 1987

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Chapter: Consumer Spending and the After-Tax Real Interest Rate (1987)
Chapter: Consumer Spending and the After-Tax Real Interest Rate (1987)
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