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The household spending response to the 2003 tax cut: evidence from survey data

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  • Julia Lynn Coronado
  • Joseph P. Lupton
  • Louise Sheiner

Abstract

The Jobs and Growth Tax Relief and Reconciliation Act of 2003 has been described as textbook fiscal stimulus. Using household survey data on the self-reported qualitative response to the tax cuts, we estimate that the boost to aggregate personal consumption expenditures from the child credit rebate and the reduction in withholdings raised the average level of real GDP in the second half of 2003 by 0.2 percent and by 0.3 percent in the first half of 2004. We also show that households in the survey were well aware of their tax cuts and tended to spend equally out of the child credit rebate and the reduced withholdings, a result that is contrary to the conventional wisdom.

Suggested Citation

  • Julia Lynn Coronado & Joseph P. Lupton & Louise Sheiner, 2005. "The household spending response to the 2003 tax cut: evidence from survey data," Finance and Economics Discussion Series 2005-32, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2005-32
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    References listed on IDEAS

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    1. The Bush fiscal stimulus and Ricardo
      by Economic Logician in Economic Logic on 2008-01-21 14:08:00

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    Cited by:

    1. Antonio Spilimbergo & Steve Symansky & Olivier Blanchard & Carlo Cottarelli, 2009. "Fiscal Policy For The Crisis," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 10(02), pages 26-32, July.
    2. Glenn Follette & Byron Lutz, 2010. "Fiscal Policy in the United States: Automatic Stabilizers, Discretionary Fiscal Policy Actions, and the Economy," Revista de Economía y Estadística, Universidad Nacional de Córdoba, Facultad de Ciencias Económicas, Instituto de Economía y Finanzas, vol. 48(1), pages 41-73, Junio.
    3. Grant Graziani & Wilbert Van der Klaauw & Basit Zafar, 2013. "A boost in the paycheck: survey evidence on workers’ response to the 2011 payroll tax cuts," Staff Reports 592, Federal Reserve Bank of New York.
    4. Broda, Christian & Parker, Jonathan A., 2014. "The Economic Stimulus Payments of 2008 and the aggregate demand for consumption," Journal of Monetary Economics, Elsevier, vol. 68(S), pages 20-36.
    5. Jonathan A. Parker & Nicholas S. Souleles & David S. Johnson & Robert McClelland, 2013. "Consumer Spending and the Economic Stimulus Payments of 2008," American Economic Review, American Economic Association, vol. 103(6), pages 2530-2553, October.
    6. Alan J. Auerbach & William G. Gale, 2009. "Activist fiscal policy to stabilize economic activity," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 327-374.
    7. Jonathan A. Parker & Nicholas S. Souleles, 2017. "Reported Effects vs. Revealed-Preference Estimates: Evidence from the propensity to spend tax rebates," NBER Working Papers 23920, National Bureau of Economic Research, Inc.
    8. Norbert Michel & Nazneen Ahmad, 2012. "Consumer response to child tax credit," Empirical Economics, Springer, vol. 43(3), pages 1199-1214, December.

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    Keywords

    Consumption (Economics); Tax credits; Finance; Personal;
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