The 2001 rebates were different because they were sent out quickly --
while the economy was still in a recession. But there's still debate as
to their effectiveness.
University of Michigan economists Matthew Shapiro and Joel Slemrod
asked households in the fall of 2001 what they planned to do with their
rebates. They found that only 21.8 percent planned to spend most of
their refund, 32 percent said they would save most of it and almost
46.3 percent said they would use it mostly to pay off debt. A follow-up
survey in 2002 yielded similar results. They found "no indication that
low-income households were more likely to spend the rebate -- in fact,
higher-income households were more likely to say that the tax rebate
led them to mostly increase spending."
A separate team of researchers attempted to see what consumers
actually did with their rebates -- not what they said they would do.
David Johnson, Jonathan Parker and Nicholas Souleles gauged the impact
of the tax rebates by looking at changes in the government's Consumer
Expenditure Survey. They concluded that Americans spent 20 to 40
percent of their rebates in the first three months, and had spent
two-thirds of it within nine months of receiving it.
They found that lower-income people spent more of their rebates than
middle-income people. Higher-income people spent more than
middle-income people, but this difference was not statistically
significant. ...
In a follow-up study, Souleles, an associate professor at the
Wharton School, looked at the impact of the rebates by focusing
strictly on credit card data.
The study showed that households' credit card debt immediately
dropped upon receipt of the 2001 rebate, but rose over the next nine
months, suggesting that the rebate that was originally used to pay off
debt was later spent.
Souleles divided credit card customers into those whose balances
were at or near their credit limit and those whose balances were
farthest from their limit. He called these people liquidity constrained
and unconstrained, respectively.
He found that "the unconstrained guys used the rebate to pay down
debt and their debt stayed down for the period we were observing -- nine
months."
The constrained people also paid off their debt initially, but their
balances started rising in the second month after they received the
rebate and continued rising through the eight months.
"Insofar as your goal is to stimulate the economy, the result is you want to target to constrained households," Souleles says.
