Federal Reserve Bank of New York on payroll tax multiplier

>   
>   (email exchange)
>   
>   On Fri, Jan 4, 2013 at 1:20 PM, Scott wrote:
>   
>   Apparently payroll tax cuts work. Who knew? (We did.)
>   

Thanks, Scott!
Likewise the expiration might be more of a drag than anticipated.


A Boost in the Paycheck: Survey Evidence on Workers’ Response to the 2011 Payroll Tax Cuts

By Grant Graziani, Wilbert van der Klaauw, and Basit Zafar

Abstract:

This paper presents new survey evidence on workers’ response to the 2011 payroll tax cuts. While workers intended to spend 10 to 18 percent of their tax-cut income, they reported actually spending 28 to 43 percent of the funds. This is higher than estimates from studies of recent tax cuts, and arguably a consequence of the design of the 2011 tax cuts. The shift to greater consumption than intended is largely unexplained by present-bias or unanticipated shocks, and is likely a consequence of mental accounting. We also use data from a complementary survey to understand the heterogeneous tax-cut response.

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