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Finance and Economics Discussion Series
Finance and Economics Discussion Series logo links to FEDS home page The Household Spending Response to the 2003 Tax Cut: Evidence from Survey Data
Julia Lynn Coronado, Joseph P. Lupton, and Louise M. 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.

Keywords: JGTRRA, tax policy, consumer spending

Full paper (112 KB PDF)

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Last update: September 7, 2005