Check in the Mail or More in the Paycheck: Does the Effectiveness of Fiscal Stimulus Depend on How It Is Delivered? *
Keywords: Fiscal stimulus, tax rebates, marginal propensity to consume, survey responses
Abstract:
I. Introduction
Fiscal stimulus during economic downturns has been a prominent feature of economic policy in the first decade of the new millennium. Payments to households by different mechanisms have been central to these stimulus policies. In 2001, households received a tax rebate paid by paper check. In 2008, households received economic stimulus payments in the form of a paper check or electronic funds transfer. In 2009, working households had a reduction in income tax withholding corresponding to a tax credit; retiree households received a one-time payment. When the economic stimulus package was being considered in early 2009, economists and policymakers pondered whether a reduction in withholding would deliver more immediate spending. Although the delivery mechanism is immaterial in a standard economic model with rational and unconstrained consumers, it might matter if, for example, many households follow rules of thumb or use mental accounts, if the awareness of a change in after-tax income depends on how it is delivered, or if the delivery mechanism affects expectations about future tax cuts or increases.
In this paper we examine evidence designed to answer the question of whether the delivery mechanism of stimulus payments affects whether the payments are spent or saved. The surveys measure household spending responses to actual and hypothetical fiscal stimulus packages in 2008 and 2009. Their design allows us to focus on households whose spending responses differ across delivery mechanism. By simultaneously asking about a series of actual and hypothetical policies, we can distinguish the effect of delivery mechanism from changes in aggregate and individual economic conditions across time. We also analyze open-ended, free responses to provide greater resolution on why people respond differently depending on how an increase in disposable income is delivered.
We find that the average propensity to spend out of an increase in after-tax income was lower for reductions in withholding--barely half as much--than for one-time payments. Just 13 percent of households said that the 2009 tax credit would lead them to mostly increase their spending--roughly half of the mostly-spend rate of 25 percent for the 2008 tax rebates. The fact that the spend rates for the tax rebates in 2008 and hypothetical and actual one-time payments in 2009 are similar provides further evidence on the importance of the delivery mechanism. Tabulations of additional survey questions, regression analysis with earlier surveys, and qualitative analysis of the free-response questions all confirm a smaller stimulative effect from a change in withholding compared to a one-time payment.
The remainder of the paper is organized as follows. Section II discusses the design of stimulus policies that provide extra income to households and why the delivery mechanism for the extra income might matter for behavior. Section III describes the survey. Section IV presents results. Section V offers a concluding discussion of how these results inform debates over the design of fiscal policies.
II. Mechanism of Payment and the Design of Policies
A. The Stimulus Policies
The policies underlying the rebates and credits in 2001, 2008, and 2009 were quite different. The 2001 rebate was an "advanced payment" of the benefit of a new 10 percent tax bracket for a portion of taxable income that was previously taxed at 15 percent. The 2001 tax cut legislation instituted the 10 percent bracket for 10 years (2001 to 2010). The intention of its supporters was that it would later be made permanent, and indeed, President Obama has proposed doing so in his FY 2011 budget. The 2008 rebate was a one-time "stimulus payment." Though administered through the tax system, the rebate was not related to any change in tax policy. The 2009 change in withholding resulted from the enactment of the Making Work Pay tax credit, which for most workers effectively provided a lump-sum income tax credit. The credit was enacted for 2009 and 2010 as part of the 2009 stimulus package. In 2009, the expressed intention of the Obama administration was that it should be made permanent by future legislation. The FY 2011 budget proposes extending the credit for one year.
Hence, the payments in 2001, 2008, and 2009 differed substantially in how they related to tax liabilities over time. The 2001 and 2009 policies are somewhat comparable because they related to income tax. Moreover, for most workers the tax liability changes associated with the rebate in 2001 and the change in withholding in 2009 were lump sum, i.e., did not change a marginal tax rate.1 The 2008 stimulus was a one-time payment unrelated to tax liabilities. While the Making Work Pay tax credit applied only to workers, the stimulus package in 2009 also provided one-time payments to certain non-workers, for example, retirees living on Social Security. Hence, the stimulus packages in 2008 and 2009 provide an opportunity for comparing the one-time payments with changes in withholding.
The mechanism for the delivery of fiscal stimulus is part of the design of the policy. At different times, policymakers use changes in withholding or one-time payments to distribute the stimulus. In 2008, policymakers chose an economic stimulus through the mechanism of a one-time, highly visible payment. The 2008 stimulus payment was designed to provide rapid stimulus in tandem with the sharp cuts in interest rates by the Federal Open Market Committee in order to head off a recession (see Economic Report of the President 2009, Box 1-1). Moreover, the 2008 stimulus payments were not closely linked to the tax system, except administratively, so it was much more natural to disburse them as a rebate than as a change in withholding.2
In 2009, the situation was quite different as policymakers chose to disburse gradually the stimulus through a much less visible change in withholding. In contrast to the notion that the 2008 rebate would "jump-start" an economy teetering on the edge of falling into recession, the 2009 tax credit was part of a policy of extended fiscal stimulus in the face of a severe and likely protracted downturn. The 2009 stimulus was designed as a two-year package. The Making Work Pay tax credit was integrated into the tax system. Hence, it was natural to implement it as a change in withholding. The chair of the Council of Economic Advisers (CEA), Christina Romer, (2009) and the Economic Report of the President (2010, p. 52) make explicit the aim of spreading the stimulus over several years.
B. Why Might the Delivery Mechanism Affect Spending?
While the form of the 2009 stimulus was being debated, some economists and commentators suggested that households were more likely to spend from a small increase in take-home pay than a lump-sum rebate. In this subsection, we discuss possible reasons to think that the delivery mechanism might matter.
Mental accounts. Richard Thaler's formulation of the role of mental accounts figured prominently in the discussion of the likely effects of the 2009 tax credit. Thaler (1992, p. 109) describes three broad accounts for wealth--a current income account, an asset account, and a future income account--and argues that the marginal propensity to consume (MPC) out of the first account is close to one, the MPC from the last account is close to zero, and the MPC from the middle account is somewhere in between. Also according to Thaler (1992, p. 112), "small gains, relative to income, will be coded as current income, and spent. Larger gains will enter the assets account, where the MPC is lower." If, as seems reasonable, reduced withholding is put into a "current income account," the mental account framework would suggest a higher spend rate from it compared to a one-time check that is more likely to be put into an "asset account." 3
This prediction of the mental accounting framework was taken to suggest that the 2009 change in withholding would be more effective than a rebate at stimulating spending. Psychologist Barry Schwartz put it as follows:
We can apply the lessons of mental accounting to the stimulus package. Perhaps a major reason why the Bush tax rebate failed to stimulate spending was that it came as a lump sum. Paid all at once, a rebate of $500 is real money.... But suppose, instead, it had been paid as a $10/week addition to your regular paycheck? Then, it would hardly be noticeable. One more latte at Starbucks. Steak instead of chicken at the restaurant. The ten bucks would just get absorbed into your weekly wage. You'd live a little better, and your money would go a little further, without you giving it a moment's thought. What this implies is that if the stimulus package includes tax relief, and if we want people to spend the money they get, we should make sure that the money comes in `spendable' packages. Not as a lump sum, but as dribs and drabs. 4
James Surowiecki, writing in the New Yorker magazine, made a similar argument, which was endorsed by Cass Sunstein and Thaler in their blog.5
Visibility. One reason that the delivery mechanism of a stimulus payment may matter for the induced spending response is that different mechanisms have different visibility. There are multiple dimensions to visibility. Most directly, a one-time rebate is, by definition, something unusual.6 How a one-time payment arrives (as a check or as an electronic funds transfer (EFT)) may matter, as well. While one could be passive about an EFT, one has to take notice of a check by depositing it. In contrast, a change in withholding is simply an adjustment by one's employer of a recurring, periodic flow. It might not be noticed, especially for individuals whose paycheck routinely fluctuates for other reasons (changes in hours, changes in deductions for benefits or other payroll deductions, etc.). Additionally, the stimulus measures had different levels of publicity. The 2008 rebate checks were the main feature of the 2008 stimulus package and received substantial press attention. Moreover, rebate recipients received a letter informing them of the rebate. In contrast, the 2009 withholding change, although a significant part of the stimulus package, was one of many components and received relatively less press attention. In particular, no letter was sent informing recipients of the Making Work Pay tax credit.
While these behavioral arguments might have been part of the Administration's thinking in designing the stimulus, we have not been able to locate any contemporaneous official discussion of the effect of the mechanism for the payment. The Administration's analysis instead rested on the assumption that the spending from the tax cut would be consistent with consumers treating it as permanent.7 Observationally, this has the same implication as the mental accounting framework.
We are agnostic about the behavioral responses to changes in withholding versus rebates. The purpose of this paper is to provide direct evidence on this question--one that has importance for the design of fiscal policies. Our survey approach will shed light on whether the mechanism for distributing fiscal stimulus matters. It will also provide direct evidence about whether households' awareness of the policy change matters for their behavior. In the next section, we describe the survey methodology.
III. Survey Methodology
In this study we analyze the answers to questions in the Thomson Reuters/University of Michigan Surveys of Consumers regarding the spending response of households to the fiscal stimulus measures in 2008 and 2009 and to hypothetical alternative stimulus measures.8 We have previously applied this methodology to studying similar policy interventions that put extra disposable income in the hands of households with the aim of providing a short-run stimulus to economic activity.9 In May and July of 2009 we asked households the following10:
Under this year's economic stimulus program, most workers will receive an income tax credit. The tax credit will, in most cases, be four hundred dollars to eight hundred dollars per household this year and next. The tax credit will reduce the amount of taxes withheld from paychecks. As a result, take-home pay may increase as much as sixty-seven dollars per month for married workers or forty-four dollars per month for single workers.
Thinking about your (family's) financial situation this year, will this income tax credit lead you mostly to increase spending, mostly to increase saving, or mostly to pay off debt?
The format of this question closely followed the question asked previously in the Surveys of Consumers about the response to the 2008 tax rebates, which were distributed as a one-time payment. While our analysis will draw on those previous responses during 2008, we also asked the respondents in 2009 retrospectively about their response to the 2008 tax rebates, using the following wording:
Under last year's economic stimulus program, many households received tax rebates that amounted to six hundred dollars for individuals and twelve hundred dollars for married couples. Those with dependent children received an additional three hundred dollars per child. The tax rebates were paid by check or direct deposit. Did you (or your family) receive a tax rebate last year?
For those households who answer yes, we then asked:
Did last year's tax rebate lead you mostly to increase spending, mostly to increase saving, or mostly to pay off debt?
The 2009 survey also inquired about various aspects of the change in withholding, including whether their (or their spouse's) employer had already lowered the amount of withholding, whether they had heard previously about the 2009 tax credit and whether they expected the tax credit to be extended.
A central question addressed by our research is whether a stimulus distributed gradually in the form of lower withholding elicits a different spending response than a stimulus distributed as a one-time payment. Simple comparisons between the consumer response to the change in withholding in 2009 and the one-time tax rebate in 2008 may be complicated by the deterioration in economic conditions between the two stimulus measures. To address this possibility, we also examine the reported response to the one-time stimulus payment to retirees and other beneficiaries in 2009. Because only a modest fraction of the survey respondents were eligible for this retiree payment and because retirees might have systematically different responses, we also asked the non-recipients about a hypothetical payment of the same magnitude. Finally, we ask those individuals who reported different spending responses to a change in withholding and a one-time payment to explain, in a free-response format, the reason for the difference. Their explanations provide additional context for the tabular and econometric results on the importance of the delivery mechanism.
IV. Results
A. Tabular Results
Table 1 summarizes our main finding that the spending response to the 2009 change in withholding was considerably weaker than to the 2008 tax rebates. The first row shows, for the alternate delivery mechanisms of stimulus payments, the percent of recipients who reported that the extra income would mostly lead them to mostly increase spending, which we henceforth refer to as the "spend rate." The spend rate is just 13 percent for the 2009 tax credit that was implemented through lower withholding--roughly half of the spend rate of 25 percent for the 2008 tax rebates.
Of course, this finding raises the question of why the household response to the two stimulus programs differed. As we discuss later, our results suggest that the most important difference was whether households received the additional income in a single, large payment or in small amounts spread evenly over several paychecks. We investigate other possibilities, including demographic differences in the recipients of the two stimulus programs and changes in the macroeconomic environment. In what follows, we first present tabulations of the additional survey responses, before turning to multivariate econometric analysis and the free responses.
One noteworthy feature of the data is that most respondents in May and July of 2009 are unaware that the change in their withholding had already occurred. The $44 per month change in withholding for single and the $67 change in withholding for married workers mentioned in the survey question reflect the actual changes workers should have seen in their paychecks based on the new withholding tables issued by the Internal Revenue Service.11 The new withholding tables were issued effective March 1, 2009, with the changes mandatory as of April 1, 2009. Even though employers were required to adopt the new schedules for payroll tax withholding by April 1, 2009, table 2 shows that the majority of respondents surveyed in May and July said "no" or "don't know" to the following question: 12
Has your employer (or your spouse's employer) already reduced your tax withholding and increased your take-home pay?
There is little direct evidence about the extent to which firms complied with the change in withholding. There is a downward shift in current personal tax payments reported in the monthly personal income statistics (see Personal Income and Outlays release, April 2009). Although the Bureau of Economic Analysis adjusted the data to reflect its best estimate of the effect on personal tax payments of the change in withholding, it does not have independent data on withholding when it makes its monthly estimate of personal income. Hence, although the monthly data on personal income and taxes do reflect a reasonable estimate of the effect of the change in the withholding formulas, they do not provide evidence on the extent to which businesses complied with the change in the withholding tables.13
We also note that there was much less publicity for the 2009 change in withholding than for the 2008 stimulus payments.
- The 2008 stimulus payments were the major feature of the 2008 stimulus program, while the 2009 Making Work Pay tax credit was one of many components of the 2009 stimulus program.
- In 2008, households received at least two letters about the stimulus payments. In 2009, there was no such official notification about the withholding change.
Moreover, one might expect awareness of the withholding change to increase over time, but the percent of respondents in July 2009 who report a change in withholding is actually lower than in May 2009, although the difference is not statistically significant.
We can investigate the effect of the awareness of the change in withholding using the survey. Notably, it does not have much effect on the response of households to the additional income. The top panel of table 3 compares the spend rates of respondents who reported being aware of a change in withholding with the spend rates of those who reported no change or not did not know whether their withholding had changed. (Individuals who volunteer that they are self-employed are not are not included this particular tabulation.) The spend rate is actually 5 percentage points lower for those individuals who said that employer withholding had already changed, although this difference is not statistically different from zero (at the 5 percent level). In contrast, the middle panel shows that, among the nearly two-thirds of respondents (asked only in July) who had previously heard about the 2009 tax credit, the spend rate is 6 percentage points higher, although again the difference is not significant. Those respondents who had heard previously about the tax credit are significantly more likely to report that their employer had already lowered their withholding.
The spending responses of households also did not differ by whether the household believed that the lower withholding represented a permanent or temporary change in taxes--a pattern at odds with the permanent income hypothesis. While the 2009 Making Work Pay tax credit as enacted was to last for only two years, it had been a key feature of the President's campaign and many speculated that it would extend past 2011. As reported in the bottom panel of table 3, households are fairly evenly split as to whether they thought the tax credit would be extended. However, the mostly-spend rates are nearly identical across the two groups, whereas the permanent income hypothesis would have predicted a larger spending response from those households who expected an extension.
One might be concerned that the lower spend rate from the 2009 tax credit compared to the 2008 tax rebate could reflect that households simply had had less time to adjust their spending at the time of the 2009 survey. Comparisons with earlier surveys, as shown in table 4, do suggest that the reported spend rate out of the rebate increases with the elapsed time between the stimulus payment and the survey question. In the spring of 2008, as households were receiving their rebates, 19 percent of households thought that the payments would mostly lead to an increase in their spending. A year later, the fraction reporting that the rebate was mostly spent is 6 percentage points higher. This suggests that the prospective reports on spending out of the lower withholding in mid-2009 could understate the actual spending from this stimulus program; however, this is unlikely to explain the entire difference in spend rates between the rebates and the change in withholding. Our econometric analysis in the next section will use the variation over time in the rebate spending responses to identify this effect.
Demographic factors could also help explain the differences in the aggregate spend rates. As table 5 shows, the change in withholding, which only affected workers, was targeted at younger and higher-income households relative to the tax rebate.14 While the households with the lower withholding were more likely to report being better off financially than a year ago, a comparable majority of both groups reported being worse off.15
One straightforward way to exclude the effects of different recipient characteristics is to focus only on the individuals who benefited from both policies. About 80 percent of the households who received the tax credit in 2009 also received the tax rebate in 2008. Table 6 summarizes the responses for these individuals who were affected by both policies. A comparison with table 1, which covers all respondents, reveals very small differences in the aggregate spend rates for the two stimulus programs. In particular, the fraction of households who plan to mostly spend the lower withholding remains more than 10 percentage points below the fraction that mostly spent the rebates. This finding suggests that differences in recipient characteristics cannot account for the different spending responses.
The substantial deterioration in macroeconomic conditions after households received their 2008 rebates may have made them less apt to spend the additional income from lower withholding in 2009 than from the rebates in 2008, as they may have been more inclined to use additional disposable income to build up their assets or reduce their debt. To address this possibility, our survey also asks about the stimulus payments of $250 sent to retirees in the spring of 2009. The timing of the retiree payments is similar to the timing of the change in withholding, but the delivery of this additional income is similar to the tax rebates. The first column of table 7 provides the responses from all households who received the one-time retiree payments in 2009. About 30 percent of these older households planned to mostly increase their spending in response to the retiree payment. These spend rates are well above the overall spend rates for the tax rebates or the change in withholding. The next two columns of table 7 are restricted to individuals who received both a retiree payment in 2009 and a tax rebate in 2008. For those who got both, the spend rates for the retiree payment and rebate are nearly identical. Hence, it appears one cannot appeal entirely to changing aggregate conditions to explain why the spend rate from the 2009 change in withholding is lower than from the 2008 rebate.
Of course, comparing the spending response in 2009 of older households who are largely not working to the spending response of all people in 2008 may not reliably indicate the effects of macroeconomic conditions on the response to stimulus payments. For this reason we also asked individuals who did not receive the retiree payment in 2009 to consider what they would do if they did receive such a one-time payment. Table 8 provides the responses for individuals who answered questions about these hypothetical payments, the change in withholding and the tax rebates. Similar to the results from the actual retiree payments, we find that among these households the spending response to the hypothetical payments is similar to the tax rebates. Because these three questions were asked in the same survey, these results suggest that the weaker spending response to the change in withholding is not simply a reflection of the changing economic conditions between stimulus programs.
These tabulations point to the importance of the income delivery for the spending response. Additional income that is distributed to households as lump-sum payments, including the 2008 rebates and the 2009 retiree payments, appears to generate higher spend rates than income that is distributed gradually via lower withholding. While this relationship holds in the summary statistics for various groups, the next section uses multivariate regressions to separate the effects of various factors on the stimulus spend rates.
B. Regression Analysis
In the regression analysis, we examine the spend/save responses to three different recent stimulus measures: the lower withholding, the tax rebates, and the retiree payments. To do so, we pool (i) the responses to the change in withholding in 2009, (ii) the prospective responses to the tax rebates in the spring of 2008, (iii) the retrospective responses to the tax rebates in the winter of 2008 and the spring of 2009, (iv) the responses to the 2009 retiree payments, and (v) the response of non-retirees to a hypothetical payment of the same amount as the 2009 retiree payment. We then estimate linear probability models pooling the various stimulus programs, actual and hypothetical. The dependent variable is set to be 100 if the stimulus program led the household to mostly spend, and zero otherwise. Thus, we combine mostly save and mostly pay off debt into a not-spend category. The explanatory variables include categorical controls for whether the extra income was delivered via lower withholding or a one-time payment, whether the survey response was prospective or retrospective, and whether the stimulus program considered was hypothetical, as well as the amount of additional annual income that the household received from the stimulus program. In some specifications, we also include a variable about changes in the household's financial condition and a set of demographic explanatory variables (e.g., age and income).
Table 9 provides summary statistics for the observations in the sample for the regressions. The sample includes responses from over 2,500 individuals in the May and June 2008, November and December 2008, and May and July 2009 surveys. Note that some individuals provided responses regarding more than one of the three stimulus programs: the 2008 rebate, the 2009 tax credit, and the 2009 retiree payment. In this section, multiple responses for one individual are treated as separate observations, and the standard errors in the regressions are corrected for the clustering arising from doing so. In the next subsection, we examine within-person variation in the responses.
Because the 2009 surveys did not ask households directly about the dollar amount they had received or expected to receive from these three stimulus measures, in order to study the effect of the size of the stimulus we used algorithms based on the program rules and household total income and demographics to impute the dollar value of each program for each household.16 In the case of the 2008 tax rebates, we can compare our imputed values to the self-reported values in the 2008 surveys. The average imputed amount of the tax rebates is 5 percent more than the amounts reported by the households, and the correlation between the imputed and self-reported amount is 0.67.17 We do not expect this imputation to be perfect because the survey only includes total household income, so we cannot exactly determine the level of eligibility for the stimulus measures. Similarly, we cannot impute the retiree payments precisely because we do not know how many Social Security beneficiaries a household contains and the payments were sent to each beneficiary separately.
Another potential source of variation in how individuals perceived one-time payments is that some received them via paper check and others via electronic funds transfer. Our prior analysis of the 2008 tax rebates found no significant difference of the spend rates associated with this delivery mechanism (see table 8 in Sahm et al. 2010).18 Consequently, in our surveys in 2009 we did not ask households how they received their 2008 tax rebates or their 2009 retiree payments. Because we did not ask about EFT versus paper check in the 2009 surveys, we do not include a control for the form of disbursement in the regressions.
The regression results, shown in table 10, are broadly consistent with the patterns revealed in the tabulations in the previous section. The regressions suggest that the fraction of people who report that a stimulus payment leads them to mostly spend is highest in response to a small, lump-sum payment. In the specification in the first column of table 10, which does not control for changes in macroeconomic conditions or for demographics and includes responses to all three stimulus measures, the use of lower withholding to deliver stimulus income is associated with a 10.9 percentage point reduction in the mostly-spend rates compared to a one-time payment. Thus, the use of a change in withholding for the 2009 tax credit can account for more than three-fourths of the lower mostly-spend rate of the 2009 tax credit relative to the 2008 tax rebates (as reported in table 1); this effect of the delivery mechanism is statistically significant. Of course, the 2008 rebates and the 2009 change in withholding occurred under different macroeconomic conditions, corresponded to different underlying policies, were of different size, and affected the income of households differently. The purpose of the multivariate regression analysis is to simultaneously control for these factors and then determine which factors are quantitatively most important in accounting for the lower mostly-spend rates from the 2009 tax credit relative to the 2008 tax rebate.
Before turning to the macroeconomic and demographic factors, note that, as discussed earlier, reported spending from a given stimulus appears to rise over time, as the mostly-spend rate reported twelve months after the receipt of the stimulus is almost 3 percentage points higher than the
mostly-spend rate reported at the time of receipt. Moreover, there is a modest negative association between the amount of the extra income from the stimulus program and the spend rates of that stimulus. Specifically, a 1 percentage point increase in the size of the stimulus income relative to the
household's income is associated with a spend rate that is roughly
1 percentage point lower. Because, on average, the 2008 tax rebate is about 1.3 percentage points larger than the 2009 tax credit (see table 9), the estimated size effect, on its own, would suggest a larger spending response to the 2009 tax credit than the 2008 rebates (which is at odds with the
pattern in table 1). Finally, whether households are asked about an actual or hypothetical policy appears to have little effect on the spending response.
The estimates reported in the second column of table 10 are from a specification that adds two measures of changes in household finances--whether households reported being worse off financially at the time of their interview relative to a year prior, and their expected income growth over the next year.19 These variable have both time-series and cross-sectional variation. The cross-sectional variation is critical for identifying whether macroeconomic conditions affected the response to the policy. At the aggregate level, there is no identifying information to distinguish whether the differences in spending responses between 2008 and 2009 are due to variations in policy design or from changes in macroeconomic conditions.
Households who report being worse off financially are almost 7 percentage points less likely to report mostly spending the additional income from any given policy. Moreover, households interviewed in 2009 who had just received the 2009 tax credit were, on average, only
percentage point more likely (not shown in the tables) to report a decline in their finances than
households interviewed in the spring of 2008 who had just received the 2008 tax rebate This small aggregate change in self-reported financial conditions applied to the regression coefficient reported in table 10 implies a trivial reduction in the aggregate mostly-spend rates from the 2008 tax
rebates and the 2009 tax credits. In addition, households who expect their income to decline over the next year are less likely to spend the additional income from stimulus programs. For example, a household that expected their income to decline by more than 10 percent over the next year has a
mostly-spend rate almost 8 percentage points lower than a `household that expects their income to be unchanged. The fraction of households who expect large income declines increased from 2008 to 2009 by about 6 percentage points, but again this has a modest effect on the aggregate spend rate.
Hence, though we are able to estimate a substantial effect of changing individual economic condition on spending using cross-sectional variation, there is little aggregate change in these measures of economic condition. Consequently, our estimates suggest that the switch from a one-time payment to
a change in withholding was a more important factor than the worsening of economic conditions over the period for explaining the aggregate patterns in the mostly-spend rates across the two policies.
Note that the finding that spending is lower for those whose personal economic circumstances have deteriorated and whose income is expected to fall has implications for both the design of policy and for how we understand economic behavior. Under the permanent income hypothesis, a liquidity-constrained household will spend a greater fraction of an increment to cash flow than an unconstrained household provided that the constrained household has temporarily low income. Our finding that those who are currently worse off than the previous year have a lower mostly-spend rate is hard to explain with the liquidity constraints unless those households are expecting even worse economic circumstances in the future. The results for expected income growth are, however, more broadly consistent with the permanent income hypothesis. We find that expecting low income growth over the next year predicts mostly saving the stimulus payment. Hence, at least under the circumstances of 2008 and 2009, it proved difficult to jump-start the economy by providing cash to those whose economic circumstances had declined or were worsening.
The three stimulus policies that we consider were targeted at different types of households, so the specification in the third column of table 10 incorporates a number of demographic controls. Adding demographic explanatory variables to the regression modestly reduces the point estimate of the effect of the delivery mechanism, but does not change the basic patterns across the attributes of the stimulus programs and changes in economic conditions.
The demographic controls in our study are not exhaustive, so in the last two columns we use sample restrictions to further assess the robustness of our estimated effects. In the fourth column, we use the same specification as in the third column, but we restrict the regression to observations from the 2009 tax credit and the 2009 retiree payments (actual and hypothetical). Because these policies were contemporaneous, this specification abstracts from changes in the policy and macroeconomic environment. In this specification, the coefficient estimates on "better off or worse off financially" and "expected income growth" are identified only from variation across different households in 2009, as opposed to the variation across households in 2008 and 2009. Excluding the observations on the 2008 tax rebates substantially reduces the sample and makes the estimates less precise. In terms of the point estimates, the effects of both the change in withholding and the change in economic conditions become somewhat larger in absolute value. The standard errors increase enough so that it is not possible to say with a high level of confidence that these changes do not arise due to sampling variation. In the fifth column, we instead exclude the retiree payments and focus only on the 2008 tax rebates versus the 2009 tax credits. Again, the sample restrictions reduce the precision of the estimates. With this sample, the estimated effect of the change in withholding is smaller in absolute value than in the other specifications.
In summary, the use of a change in withholding to deliver stimulus income appears to substantially reduce the spending response of households. In addition, the worsening of a household's financial situation leads to a reduction in their propensity to mostly spend the stimulus. The positive relationship between the spending response and the time since receipt, as well as the negative relationship between the spending response and the size of the stimulus relative to household income, are more modest in magnitude and less robust across the specifications.
C. Qualitative Analysis of Free-Response Answers to Why Stimulus Response Changed
An alternate approach to understand why the mostly-spend rates are lower from the change in withholding than from the rebates or the retiree payments is to simply ask households. To do so, we focus on the households who reported mostly spending the rebate or retiree payment but reported mostly saving (or paying off debt) with the lower withholding; it is this direction of change in response that dominates the aggregate results. While the sample sizes for this analysis are considerably smaller and the interpretation of individuals' reasons for changing their response is inevitably more subjective, these free responses largely confirm our conclusions based on the tabulations and regressions.
The free-response question was posed to two groups of individuals. As the first column of table 11 shows, 471 individuals received both a 2008 tax rebate and a 2009 tax credit in the form of lower withholding. Nearly 70 percent of these individuals report the same planned use of the additional income from both stimulus programs. It is the 14 percent who report mostly spending the 2008 rebate, but mostly saving or paying down debt in response to the 2009 lower withholding, who are most useful for understanding the lower aggregate mostly-spend rate for the change in withholding. To these individuals we asked the following question:
You said that you mostly spent last year's tax rebate and that you plan to mostly (save/pay off debt with) this year's tax credit. Why do you plan to use this year's credit differently than last year's rebate?
The distribution of responses to this question is reported in table 12, column 1.
In the July survey, we also asked a similar question to the individuals (Table 11, row 1, column 2) who said that they would mostly spend the hypothetical one-time payment, but would mostly save or pay off debt with the lower withholding. Table 12, column 2, gives the distribution of the reasons for a different use for the hypothetical payment than the lower withholding.
Table 12 summarizes the free responses of these two groups of individuals who spent the one-time payment but did not spend the lower withholding. The first column of the table refers to the 64 individuals who said they mostly spent the 2008 tax rebate but planned to mostly save or pay off debt with the 2009 tax credit (corresponding to the rounded 14 percent of respondents in the first row and first column of table 11). The most common reason (47 percent) given for this difference in behavior is a worsening of general economic or personal financial conditions. A sizeable minority (23 percent) mention the difference in how the income is delivered, for example gradual versus lump sum. Only a small fraction (3 percent) points to differences in the size of the stimulus. A non-trivial number of respondents (19 percent) simply describe some purchase in 2008 that they needed, or wanted to make that did not recur in 2009. Only 8 percent of the households could not formulate a coherent reason for why their behavior differed between the 2009 tax credit and the 2008 tax rebate.
The second column repeats the same exercise for those households who reported that they would mostly spend the hypothetical one-time payment in 2009 but would not spend the 2009 tax credit. This free-response question was only asked in the July 2009 survey, so the sample size is about half as large as in the first column. Not surprisingly, no one pointed to a change in economic or personal financial conditions to justify the difference in behavior, because the two stimulus measures are described as happening at the same time. The most common response (36 percent) is a difference in the delivery mechanism--lump sum versus a change in withholding. The free responses included comments such as it is "hard to notice" the extra money from the 2009 tax credit and that it is different having an extra $250 in your pocket than having an extra $20 in each paycheck, and that extra money in a paycheck goes toward paying debts rather than additional spending. Another large fraction of households (33 percent) points to the fact that the retiree payment was smaller than the tax credit and they are more inclined to spend the smaller amount. In this case, households are clearly focusing on the annual stimulus or total stimulus from the two programs, as on a monthly basis the tax credit is a smaller boost to income.
It is possible that, because the boost to paychecks from the 2009 tax credits was too small for many households to perceive (consistent with table 2), the boost to spending was too small to perceive. As in the comparisons between the 2008 tax rebate and the 2009 tax credit, a minority (12 percent) points to some particular expense for which they would use the hypothetical one-time payment. Unlike the first column, there were a number of responses (15 percent) in which households justify the different behavior as a "spend some, save some" philosophy. It is possible that this split-the-difference attitude reflects the hypothetical nature of the question, but it could also point to the fact that, even for a given household, the spending and saving heuristics are not always unambiguous. In this category are also individuals who said they would spend the retiree payment because it was unexpected or "bonus money." As with the 2008 tax rebate sample shown in the first column of the table, only a small fraction (3 percent, that is, just one of 33 respondents) could not provide a reason for their difference in spending behavior across the two programs.
V. Conclusion
The mostly-spend rate from the 2009 tax credit, which was delivered as a change in withholding, was less than the mostly-spend rate from the 2008 tax rebates, which was delivered as a one-time payment. This research isolates the effect of delivery mechanism by comparing the same individuals' responses to alternative policies, so it provides specific evidence on the relevance of the delivery mechanism for behavioral responses. Univariate tabulations, multivariate regressions, and analysis of free responses about the reason for a changed response for the various stimulus measures all suggest a primary role for the way in which the stimulus income is delivered to households in determining spending. Changes in economic and personal financial conditions play a secondary, but also important, role in the spending response of households to the fiscal stimulus.
As discussed in section II, the mental accounts hypothesis of Thaler suggests that a change in withholding should lead to more spending than a rebate. Under this formulation of mental accounts, a significant rebate is added to the asset account while a change in withholding is treated as an ongoing flow of income. Only a small fraction of additions to assets accounts is spent while a high fraction of ongoing flows of income is spent. Our finding does not provide support for the mental accounts hypothesis's prediction about the difference in behavior between rebates and changes in withholding.
The low propensity to consume from the 2009 change in withholding is indeed a puzzle from many perspectives. As discussed above, the Administration expected the change in withholding to be added to households' estimate of their permanent income, which would lead to the same prediction of a high spending rate as the mental accounts hypothesis. Spending from the change in withholding, however, is not a function of whether households expected the underlying tax credit to be extended.
The salience or simply the visibility of the rebate versus a change in withholding could also affect behavior. Our approach provides some evidence of the behavioral response as a function of visibility. We find that the majority of households did not notice the withholding changes associated with the 2009 Making Work Pay tax credit.20 What does this inattention to changes in the bottom line of individuals' paychecks imply for the spending response? It is not clear what to expect a priori: will an inattentive household spend extra cash that appears in a paycheck, or allow it to accrue in a checking account? That would depend on whether the consumption "autopilot" defaults to spending or saving extra cash. The survey respondents who noticed the change in withholding were no more or less likely to spend the extra disposable income. In their study of the 2001 stimulus payment, which was delivered as a direct payment, Shapiro and Slemrod (2003a) find that whether or not a household claims to have a budget is not a significant determinant of the spending response but, conditional on having a budget, those whose budget targets spending have a somewhat higher propensity to spend relative to other budget rules.21 Apparently, some households viewed the 2008 tax rebates as large enough boosts in their income to induce them to make a large purchase such as a vacation or a car repair. In contrast, households receive the 2009 tax credit as a small but repeated boost to their paychecks, so it may be less likely to trigger a large purchase; alternatively, it may be harder for people to remember and report the extra small expenses that the tax credit induced.
Our survey provides narrative evidence on why the spending response of individuals changed when faced with different mechanisms for delivering payments. In these free responses, some respondents say that the change in the withholding was too small to bother with and therefore they saved it. Note these respondents are telling us something different from the conventional wisdom that unnoticed cash gets spent. In general, near-rational, rule-of-thumb behavior can yield either spending or saving unnoticed cash depending on whether the rule of thumb targets spending or accumulation. Hence, our survey provides some direct evidence that inattention did not affect behavior in this context.
One final concern is that the survey answers used in our analysis do not provide an accurate signal of the actual spending response of households. The external validity and interpretation of such direct survey responses on the uses of stimulus income has been a long-standing question with this research approach. On this point we note first that the research reported in this paper is primarily focused on the difference in the mostly-spend rates across stimulus programs, and not on the level of the spend rate itself. Even if levels are biased, differences (that is, between the response to direct payments versus withholding) may not be. Second, earlier work on the 2001 and 2008 tax rebates (Shapiro and Slemrod 2003b, 2009 and Sahm et al. 2010) finds that the survey responses are consistent with aggregate time-series data on spending, saving, and consumer debt. Third, support for the external validity of this approach is provided by recent work by Parker et al. (2010) using the Consumer Expenditure Survey (CEX) and by Parker and Broda (2009) using Homescan survey scanner data. Both studies include a "mostly spend/save/pay debt" survey question patterned after those developed in the line of research pursued in this paper. Households who responded that they had mostly spent the 2008 rebate had substantially higher propensities to increase spending due to the rebate as measured by their analysis of both the CEX and Homescan data, compared to households reporting that they had mostly saved or mostly paid off debt.
All in all, we estimate that the effect of these policies in stimulating spending was modest at best. Moreover, in contrast to a prominent behavioral hypothesis, the reduction in withholding led to an even lower rate of spending than did one-time payments. Just 13 percent of households said that the 2009 tax credit would lead them to mostly increase their spending--roughly half of the mostly-spend rate of 25 percent for the 2008 tax rebates. Cross-tabulations with additional survey questions, regression analysis, and qualitative analysis of the free-response questions all confirm a smaller stimulative effect from a change in withholding compared to a one-time payment. Household economic conditions and other features of the stimulus program, such as its per-household size, also play a role in the spend/save decision, and therefore in the effectiveness of the fiscal stimulus, but their effect is considerably smaller than the effect of the delivery mechanism. Therefore, the survey methods in this paper shed light both on the effectiveness of particular stimulus policies and more generally on the design of the mechanisms for delivering fiscal stimulus.
Appendix: Survey Instrument in May 2009 and July 2009
A30. Now we would like to ask you a few questions about recent tax changes. Under this year's economic stimulus program, most workers will receive an income tax credit. The tax credit will, in most cases, be four hundred dollars to eight hundred dollars per household this year and next. The tax credit will reduce the amount of taxes withheld from paychecks. As a result, take-home pay may increase as much as sixty-seven dollars per month for married workers or forty-four dollars per month for single workers. Thinking about your (family's) financial situation this year, will this income tax credit lead you mostly to increase spending, mostly to increase saving, or mostly to pay off debt?
A31. Has your employer (or your spouse's employer) already reduced your tax withholding and increased your take-home pay?
Only asked in the July 2009 survey
A31a. Had you heard any information about this tax credit before taking part in this survey?
Only asked in the July 2009 survey
A31b. The current tax credit applies to this year and next year. Do you think it will be extended into future years?
A32. Under last year's economic stimulus program, many households received tax rebates that amounted to six hundred dollars for individuals and twelve hundred dollars for married couples. Those with dependent children received an additional three hundred dollars per child. The tax rebates were paid by check or direct deposit. Did you (or your family) receive a tax rebate last year?
A33. (Did/Will) last year's tax rebate lead you mostly to increase spending, mostly to increase saving, or mostly to pay off debt?
If answers to A30 and A33 are not the same, go to A35, otherwise go to A36
A35. You said that you mostly (spent/saved/paid off debt with) last year's tax rebate and that you plan to mostly (spend/save/pay off debt with) this year's tax credit. Why do you plan to use this year's credit differently than last year's rebate?
A36. Under another provision of this year's stimulus program, people who are receiving income from Social Security, Railroad Retirement, or the Veterans Administration will receive a one-time stimulus payment of two hundred fifty dollars this spring.
A36. Under another provision of this year's stimulus program, people who are receiving income from Social Security, Railroad Retirement, or the Veterans Administration will receive a one-time stimulus payment of two hundred fifty dollars this spring. Have you (or your spouse) received this one-time payment?
Asked only in the May 2009 survey
A37. Do you (or your spouse) expect to receive this one-time payment?
A38. Will this one-time payment of two hundred fifty dollars lead you mostly to increase spending, mostly to increase saving, or mostly to pay off debt?
A39. Suppose that the program rules changed and you did receive this one-time payment of two hundred fifty dollars. Would it lead you mostly to increase spending, mostly to increase saving, or mostly to pay off debt?
Asked only in the July 2009 survey
If answers to A30 and A39 are not the same, go to A41, otherwise end section
A41. You said that you would mostly (spend/save/pay off debt with) this one-time payment and that you plan to mostly (spend/save/pay off debt with) this year's tax credit. Why would you use this one-time payment differently than this year's credit?
Questions about Personal Finances and Income Expectations
A2. We are interested in how people are getting along financially these days. Would you say that you (and your family living there) are better off or worse off financially than you were a year ago?
A15. During the next 12 months, do you expect your (family) income to be higher or lower than during the past year?
A15a. By about what percent do you expect your (family) income to (increase/decrease) during the next 12 months?
References
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Chambers, Valrie and Marilyn K. Spencer. (2008). "Does Changing the Timing of a Yearly Individual Tax Refund Change the Amount Spent vs. Saved?" Journal of Economic Psychology. 29(6), December, pp. 856-862.
Chambers, Valrie, Marilyn K. Spencer, and Joseph Mollick. (2009). "Goldilocks Rebates: Complying with Government Wishes Only When Rebate Amount is `Just Right."' Proceedings of the Academy for Economics and Economic Education, 12(2), pp. 34-39.
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Parker, Jonathan A., Nicholas S. Souleles, David S. Johnson, and Robert McClelland. (2010). "Consumer Spending and the Economic Stimulus Payments of 2008." (http://www.kellogg.northwestern.edu/faculty/parker/htm/research/PSJM2010.pdf)
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Economy, Editor Jeffrey R. Brown. Cambridge: MIT Press, in press.
Schwartz, Barry . "On the Economic Stimulus Package: The `Packaging' Counts" (February 1, 2009) http://www.psychologytoday.com/blog/the-choices-worth-having/200902/the-economic-stimulus-package-the-packaging-counts.
Shapiro, Matthew D. and Joel Slemrod. (1995). "Consumer Response to the Timing of Income: Evidence from a Change in Tax Withholding." American Economic Review, 85(1), pp.
274-283.
Shapiro, Matthew D. and Joel Slemrod (2003a). "Consumer Response to Tax Rebates."American Economic Review, 93(1), pp. 381-396.
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| 2009 Tax Credit: Lower Withholding | 2008 Tax Rebate | |
| Percent of stimulus recipients: Mostly spend | 13 | 25 |
| Percent of stimulus recipients: Mostly save | 33 | 25 |
| Percent of stimulus recipients: Mostly pay debt | 54 | 50 |
| Percent of all respondents: Did not receive | 34 | 21 |
| Percent of all respondents: Did not know use | 3 | 1 |
Note: Authors' weighted tabulations of the May and July 2009 Thomson Reuters/University of Michigan Surveys of Consumers. There were 982 adult-household heads or spouses who participated in the surveys. Tabulations of stimulus recipients in the top panel exclude individuals who did not report a planned use for the stimulus payment.
| May/July 2009 | May 2009 | July 2009 | |
| Percent of stimulus recipients: Employer already changed | 38 | 40 | 35 |
| Percent of stimulus recipients: Employer did not change | 45 | 42 | 48 |
| Percent of stimulus recipients: Don't know if changed | 12 | 12 | 11 |
| Percent of stimulus recipients: Self-employed (volunteered) | 6 | 6 | 6 |
Note: Authors' weighted tabulations of 590 individuals in the May and July 2009 Surveys of Consumers who reported a use for the lower withholding.
| Percent of Respondents | Percent w/ Lower Withholding | Percent Spend | p-value for Spend Rate | |
| Withholding is now lower?: Yes | 40 | 100 | 10 | 0.14 |
| Withholding is now lower?: No / Don't know | 60 | 0 | 15 | 0.14 |
| Heard about credit previously?: Yes | 61 | 48 | 15 | 0.14 |
| Heard about credit previously?: No / Don't know | 39 | 19 | 9 | 0.14 |
| Expect credit to be extended?: Yes | 47 | 43 | 12 | 0.89 |
| Expect credit to be extended?: No / Don't know | 53 | 35 | 11 | 0.89 |
Note: Authors' weighted tabulations. The first question was asked in May and July to 592 individuals, and the second and third question was only asked in July to 267 individuals.
| May/June 2008 | Nov/Dec 2008 | May/July 2009 | |
| Percent of stimulus recipients: Mostly spend | 19 | 22 | 25 |
| Percent of stimulus recipients: Mostly save | 27 | 23 | 25 |
| Percent of stimulus recipients: Mostly pay debt | 53 | 55 | 50 |
Note: Authors' weighted tabulations. There are 848 respondents in May and June 2008, 760 in Nov. and Dec. 2009 and 745 in May and July 2009.
| Percent of Stimulus Recipients | 2009 Tax Credit: Lower Withholding | 2008 Tax Rebate |
| Age: Under 40 | 31 | 24 |
| Age: 40 - 64 | 62 | 50 |
| Age: 65 and over | 8 | 26 |
| Income: Under $35,000 | 21 | 32 |
| Income: $35,001 to $75,000 | 35 | 35 |
| Income: More than $75,000 | 44 | 33 |
| Personal finances compared to a year ago: Better | 24 | 20 |
| Personal finances compared to a year ago: Same | 21 | 25 |
| Personal finances compared to a year ago: Worse | 55 | 54 |
Note: Authors' weighted tabulations of the May and July 2009 Surveys of Consumers.
| 2009 Tax Credit: Lower Withholding | 2008 Tax Rebate | |
| Percent of stimulus recipients: Mostly spend | 12 | 23 |
| Percent of stimulus recipients: Mostly save | 31 | 24 |
| Percent of stimulus recipients: Mostly pay debt | 56 | 53 |
Note: Authors' weighted tabulations of the May and July 2009 Surveys of Consumers. There were 471 adult-household heads or spouses who reported a use for both forms of stimulus.
| 2009 Retiree Payment | Recipient of Both, 2009 Retiree Payment | Recipient of Both, 2008 Tax Rebate | |
| Percent of stimulus recipients: Mostly spend | 30 | 32 | 31 |
| Percent of stimulus recipients: Mostly save | 29 | 26 | 24 |
| Percent of stimulus recipients: Mostly pay debt | 41 | 41 | 46 |
Note: Authors' weighted tabulations of the May and July 2009 Surveys of Consumers. There were 356 adult-household heads or spouses who reported a use for the retiree payment and 282 households with both the retiree payment and the tax rebate.
| 2009 Tax Credit: Lower Withholding | 2009 Hypothetical One-Time Payment | 2008 Tax Rebate | |
| Percent of stimulus recipients: Mostly spend | 12 | 24 | 23 |
| Percent of stimulus recipients: Mostly save: | 32 | 30 | 25 |
| Percent of stimulus recipients: Mostly pay debt | 56 | 46 | 52 |
Note: Authors' weighted tabulations of the May and July 2009 Surveys of Consumers. There were 384 adult-household heads or spouses who reported a use for three forms of stimulus.
| 2009 Tax Credit: Lower Withholding | 2008 Tax Rebate | 2009 Retiree Payment | 2009 Hypothetical Payment | |
| Percent mostly spend | 13 | 22 | 30 | 23 |
| Percent by form of delivery: Lower withholding | 100 | 0 | 0 | 0 |
| Percent by form of delivery: One-time payment | 0 | 100 | 100 | 100 |
| Percent by timing of survey response: Contemporaneous | 100 | 36 | 100 | 100 |
| Percent by timing of survey response: Six months after receipt | 0 | 32 | 0 | 0 |
| Percent by timing of survey response: Twelve months after receipt | 0 | 32 | 0 | 0 |
| Percent hypothetical payment | 0 | 0 | 0 | 100 |
| Dollar value of stimulus (imputed annual): Mean | 602 | 1019 | 250 | 250 |
| Dollar value of stimulus (imputed annual): Standard deviation | 271 | 605 | 0 | 0 |
| Dollar value of stimulus (imputed annual): Mean percent of annual income | 1.2 | 2.4 | 1.0 | 0.5 |
| Current finances compared to a year ago: Better off | 24 | 23 | 15 | 22 |
| Current finances compared to a year ago: Same | 21 | 22 | 33 | 21 |
| Current finances compared to a year ago: Worse off | 55 | 55 | 52 | 56 |
| Expected income growth g: g >= 4% | 24 | 24 | 14 | 23 |
| Expected income growth g: 4% > g > 0% | 24 | 28 | 22 | 23 |
| Expected income growth g: g = 0% | 23 | 24 | 33 | 24 |
| Expected income growth g: 0% > g > -10% | 18 | 16 | 24 | 18 |
| Expected income growth g: g <= -10% | 12 | 8 | 7 | 13 |
| Number of observations | 590 | 2,358 | 356 | 609 |
Note: Authors' weighted tabulations of the May and June 2008, Nov. and Dec. 2008, and May and July 2009 surveys.
| 2009 Tax Credit: Lower Withholding | 2008 Tax Rebate | 2009 Retiree Payment | 2009 Hypothetical Payment | |
| Married | 68 | 62 | 51 | 64 |
| Have children in household | 42 | 36 | 7 | 43 |
| Age of respondent (head or spouse): Under age 30 | 7 | 8 | 2 | 6 |
| Age of respondent (head or spouse): Age 30 to 39 | 24 | 19 | 2 | 25 |
| Age of respondent (head or spouse): Age 40 to 49 | 28 | 21 | 7 | 28 |
| Age of respondent (head or spouse): Age 50 to 64 | 34 | 28 | 23 | 35 |
| Age of respondent (head or spouse): Age 65 and over | 8 | 24 | 65 | 5 |
| Age of respondent (head or spouse): Did not report age | 0 | 0 | 1 | 0 |
| Household income: Less than $20,000 | 8 | 14 | 31 | 9 |
| Household income: $20,001 to $35,000 | 12 | 17 | 21 | 11 |
| Household income: $35,001 to $50,000 | 14 | 15 | 14 | 13 |
| Household income: $50,001 to $75,000 | 21 | 19 | 10 | 19 |
| Household income: More than $75,000 | 42 | 29 | 14 | 44 |
| Household income: Did not report income | 3 | 5 | 10 | 4 |
| Household stock wealth: None | 25 | 34 | 53 | 27 |
| Household stock wealth: $1 to $15,000 | 17 | 14 | 9 | 15 |
| Household stock wealth: $15,001 to $50,000 | 16 | 13 | 5 | 16 |
| Household stock wealth: $50,001 to $100,000 | 12 | 10 | 8 | 10 |
| Household stock wealth: $100,001 to $250,000 | 12 | 10 | 7 | 12 |
| Household stock wealth: More than $250,000 | 8 | 7 | 8 | 10 |
| Household stock wealth: Did not report stock value | 9 | 10 | 9 | 10 |
| Household stock wealth: Did not report if stockowner | 1 | 2 | 2 | 1 |
| Percent with survey response in 2009 | 100 | 32 | 100 | 100 |
| Number of observations | 590 | 2,358 | 356 | 609 |
Note: Authors' weighted tabulations of the May and June 2008, Nov. and Dec. 2008, and May and July 2009 surveys.
| (1) | (2) | (3) | (4) | (5) | |
| Constant | 23.5 | 29.2 | 19.4 | 24.2 | 14.3 |
| Constant (standard error) | (1.3) | (2.4) | (5.3) | (8.0) | (5.7) |
| Lower withholding | -10.9 | -10.2 | -7.7 | -15.2 | -5.0 |
| Lower withholding (standard error) | (1.9) | (1.9) | (1.9) | (3.9) | (2.1) |
| Contemporaneous (omitted) | |||||
| Six months after receipt | -0.6 | -0.4 | 0.2 | 2.2 | |
| Six months after receipt (standard error) | (2.0) | (2.0) | (2.0) | (2.1) | |
| Twelve months after receipt | 2.7 | 2.8 | 3.7 | 5.9 | |
| Twelve months after receipt (standard error) | (1.9) | (1.9) | (1.9) | (2.2) | |
| Stimulus as percent of annual income | -1.1 | -1.0 | -0.3 | 0.7 | 0.4 |
| Stimulus as percent of annual income (standard error) | (0.3) | (0.4) | (0.5) | (2.0) | (0.5) |
| Hypothetical payment | -1.2 | -0.4 | 2.8 | -3.9 | |
| Hypothetical payment (standard error) | (2.3) | (2.3) | (2.3) | (3.8) | |
| Better off financially than last year | -3.8 | -1.9 | -3.5 | -0.04 | |
| Better off financially than last year (standard error) | (2.6) | (2.6) | (3.9) | (2.7) | |
| Same financially as last year (omitted) | |||||
| Worse off financially than last year | -6.7 | -5.8 | -6.8 | -4.7 | |
| Worse off financially than last year (standard error) | (2.2) | (2.2) | (3.3) | (2.2) | |
| Expected income growth: g >= 4% | -2.5 | -0.5 | 0.1 | -1.0 | |
| Expected income growth: g >= 4% (standard error) | (2.4) | (2.5) | (3.7) | (2.5) | |
| Expected income growth: 4% > g > 0% | -0.1 | 1.1 | 1.9 | 1.3 | |
| Expected income growth: 4% > g > 0% (standard error) | (2.4) | (2.4) | (3.8) | (2.4) | |
| Expected income growth: g = 0% (omitted) | |||||
| Expected income growth: 0% > g > -10% | -1.5 | -1.3 | 0.2 | -2.4 | |
| Expected income growth: 0% > g > -10% (standard error) | (2.6) | (2.6) | (3.7) | (2.6) | |
| Expected income growth: g <= -10% | -7.8 | -6.4 | -6.3 | -5.1 | |
| Expected income growth: g <= -10% (standard error) | (2.9) | (2.9) | (3.9) | (3.0) | |
| Sample includes 2008 tax rebates | Yes | Yes | Yes | No | Yes |
| Sample includes 2009 retiree payments | Yes | Yes | Yes | Yes | No |
| Regression controls for demographics | No | No | Yes | Yes | Yes |
| Number of observations | 3,913 | 3,913 | 3,913 | 1,555 | 2,948 |
| Number of respondents | 2,592 | 2,592 | 2,592 | 968 | 2,477 |
Note: Dependent variable equals 100 if the respondent reports mostly spending the stimulus income and zero if the respondent reports mostly saving or mostly paying off debt. Pooled linear regression have standard errors clustered on individuals. Estimates in bold are statistically different from zero at the 5% level.
| (1) | (2) | (3) | (4) | (5) | |
| Married | 2.6 | 4.5 | 2.2 | ||
| Married | (1.9) | (2.7) | (1.9) | ||
| Have children in household | -0.1 | 5.1 | -2.5 | ||
| Have children in household | (2.2) | (3.1) | (2.3) | ||
| Under age 30 (omitted) | |||||
| Age 30 to 39 | -0.4 | 0.0 | -1.3 | ||
| Age 30 to 39 | (4.0) | (6.5) | (4.0) | ||
| Age 40 to 49 | -0.6 | -4.6 | -0.4 | ||
| Age 40 to 49 | (3.8) | (6.2) | (3.9) | ||
| Age 50 to 64 | 2.7 | 4.2 | 0.6 | ||
| Age 50 to 64 | (4.0) | (6.4) | (4.1) | ||
| Age 65 and over | 9.5 | 8.3 | 8.6 | ||
| Age 65 and over | (4.4) | (6.9) | (4.5) | ||
| Did not report age | 0.4 | -0.2 | -5.6 | ||
| Did not report age | (14.2) | (15.2) | (12.7) | ||
| Household income: $20,000 or less (omitted) | |||||
| Household income: $20,001 to $35,000 | 2.1 | 0.9 | 5.8 | ||
| Household income: $20,001 to $35,000 | (3.3) | (5.6) | (3.5) | ||
| Household income: $35,001 to $50,000 | -1.1 | -1.0 | 3.1 | ||
| Household income: $35,001 to $50,000 | (3.7) | (6.5) | (3.9) | ||
| Household income: $50,001 to $75,000 | -2.5 | -5.9 | 3.7 | ||
| Household income: $50,001 to $75,000 | (3.8) | (6.6) | (4.1) | ||
| Household income: More than $75,000 | 1.6 | 0.3 | 6.4 | ||
| Household income: More than $75,000 | (4.1) | (7.1) | (4.5) | ||
| Household income: Did not report income | 0.4 | -4.2 | 7.7 | ||
| Household income: Did not report income | (5.2) | (8.7) | (5.7) | ||
| Household stock wealth: No stock wealth (omitted) | |||||
| Household stock wealth: $1 to $15,000 | -0.3 | 0.5 | -1.2 | ||
| Household stock wealth: $1 to $15,000 | (2.7) | (4.1) | (2.7) | ||
| Household stock wealth: $15,001 to $50,000 | 3.8 | 8.3 | 2.3 | ||
| Household stock wealth: $15,001 to $50,000 | (2.9) | (4.7) | (2.9) | ||
| Household stock wealth: $50,001 to $100,000 | 2.6 | 7.2 | -0.4 | ||
| Household stock wealth: $50,001 to $100,000 | (3.0) | (4.7) | (3.1) | ||
| Household stock wealth: $100,001 to $250,000 | 1.7 | 3.1 | 0.7 | ||
| Household stock wealth: $100,001 to $250,000 | (3.1) | (4.5) | (3.1) | ||
| Household stock wealth: More than $250,000 | 7.8 | 7.0 | 8.6 | ||
| Household stock wealth: More than $250,000 | (4.0) | (5.6) | (4.0) | ||
| Household stock wealth: Did not report stock value | 2.9 | 2.5 | 3.1 | ||
| Household stock wealth: Did not report stock value | (3.1) | (4.5) | (3.2) | ||
| Household stock wealth: Did not report if stockowner | 6.3 | 23.3 | -1.1 | ||
| Household stock wealth: Did not report if stockowner | (6.3) | (12.3) | (6.1) | ||
| Sample includes 2008 tax rebates | Yes | Yes | Yes | No | Yes |
| Sample includes 2009 retiree payments | Yes | Yes | Yes | Yes | No |
Regression controls for demographics No No Yes Yes Yes
| Percent of Individuals Who | 2008 Tax Rebate | 2009 Hypothetical Payment |
| Mostly spent this one-time payment, but mostly saved/paid debt with lower withholding | 14 | 13 |
| Mostly saved/paid debt with this one-time payment, but mostly spent lower withholding | 3 | 4 |
| Reported different forms of "economic" saving | 15 | 11 |
| Had the same response to both programs | 68 | 72 |
| Memo: Number of respondents | 471 | 241 |
Note: Authors' weighted tabulations of the May and July 2009 surveys for the tax rebates and July 2009 for the hypothetical retiree payments.
| 2008 Tax Rebate | 2009 Hypothetical Payment | |
| Economic conditions and/or personal finances worse than last year | 47 | 0 |
| Difference in the delivery of the extra income (gradual versus lump-sum) | 23 | 36 |
| Difference in the amount of the extra income | 3 | 33 |
| Had a particular spending need or use for one-time payment | 19 | 12 |
| Save some / spend some, Spend since income is unexpected | 0 | 15 |
| Don't know why different response | 8 | 3 |
| Memo: Number of respondents | 64 | 33 |
Note: Authors' weighted tabulations of the May and July 2009 surveys. Note: Authors' weighted tabulations of the May and July 2009 surveys. Note: Authors' weighted tabulations of the May and July 2009 surveys.
Footnotes
Federal Reserve Board
Washington, DC 20551
tel. 202 452-2291
[email protected]
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Department of Economics
Ann Arbor MI 48109-1220
and NBER
tel. 734 764-5419
[email protected]
Return to Text
Department of Economics
Ann Arbor MI 48109-1220
and NBER
tel. 734 936-3914
[email protected]
Return to Text
The 2008 tax rebate went to all tax filers with more than $3000 in qualifying income (Social Security benefits, veterans' benefits, and Railroad Retirement benefits plus earned income). (Those with qualifying income who ordinarily would not have to file [mainly low-income Social Security recipients] had to file a 2007 return to get the rebate.) The rebate was $600 per adult taxpayer ($300 for those who did not have a tax liability but received the rebate owing to having qualifying income) plus $300 per dependent child under the age of 18. The imputation for the 2008 tax rebate assumes that singles under age 65 receive $600 plus $300 for each child under age 18, and that married couples receive $1200 plus the same child benefit. The 2008 tax rebate is phased out at a rate of 5 percent of income for singles with income above $75,000 and married couples with income above $150,000. For both the actual and hypothetical retiree payment in 2009, we assume that households received $250. Return to Text