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> (email exchange)
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> On Fri, Jan 4, 2013 at 1:20 PM, Scott wrote:
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> 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 CutsBy 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.
Other studies into other tax cuts and income increases have produced similar results:
http://onlinelibrary.wiley.com/doi/10.1111/j.1745-6606.1984.tb00322.x/abstract
http://www.nber.org/digest/mar09/w14753.html
http://www.kellogg.northwestern.edu/faculty/parker/htm/research/johnsonparkersouleles2005.pdf
http://finance.wharton.upenn.edu/~rlwctr/papers/0801.pdf
Perhaps they should talk to Olivier Blanchard, but what the heck do I know? Economics is hard.
We could use more tax cuts, much more, especially if you want to increase govt revenue significantly over the next decade.