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A boost in the paycheck: survey evidence on workers’ response to the 2011 payroll tax cuts


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.

Keywords: Income tax; Consumption (Economics); Wages; Consumer behavior;

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Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2013

Order Number: 592