ABSTRACT

Using surveys for the 2008, 2009 and 2011 federal tax rebates, this study tests whether taxpayers (1) noticed the rebates, and (2) spent, rather than saved, a high percentage of each. Results add further evidence that behavioral economics and mental accounting are relevant in predicting tax rebate behavior. It also indicates that rebates distributed in small amounts in take-home pay accomplish stimulus much more effectively than a lump sum, which is critically important for effective public policy. Many taxpayers did not realize they received the 2009 tax rebate, and those who knew spent a higher average percentage than for the 2008 rebate. The results also indicate the need to control for (shifting) savings heuristics during an economic crisis, because this heuristic apparently did change on a national scale. The national economic crisis—particularly unemployment—was smaller and slower to hit the city sampled in this study than for the nation as a whole. The results with the smaller, localized sample in 2009 clearly indicate the need to control for (shifting) savings heuristics. This concern appears validated by the results of another small, localized sample to measure the saving decisions in response to the 2 percent reduction in social security taxes in 2011. These results are important in increasing the effectiveness and efficiency of tax rebates to address public policy concerns, including economic recovery.

Data Availability: The data are available from the authors upon request.

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