Ricardian or Spender Consumers? Evidence from a Taxpayer Survey Questionnaire

Échevin, Damien (2009): Ricardian or Spender Consumers? Evidence from a Taxpayer Survey Questionnaire.

Abstract

This paper uses a unique survey questionnaire to assess the impact of the 2002 French tax cut on consumption. I find that the proportion of "spender" consumers as opposed to "Ricardian" consumers is relatively high, with 52.7 per cent of the households declaring that they consume their tax cuts. I also find evidence that the average marginal propensity to consume tax cuts (76.5%) is significantly greater than the average marginal propensity to consume temporary rises in earnings (42.4%). This result is consistent with the PIH. Furthermore, the smaller the tax cut, the greater this gap; and the higher the family earnings, the higher the marginal propensity to consume tax cuts, which invalidates the effect of liquidity constraints on consumption in that context.

• Item Type: MPRA Paper
• Language: English
• Keywords: income tax cut; consumption; survey questionnaire; PIH; liquidity constraints.
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H31 - Household; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H24 - Personal Income and Other Nonbusiness Taxes and Subsidies; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth

References

Barro, R. J. (1974) Are government bonds net wealth, Journal of Political Economy, 82 (6), 1095--1117.

Mankiw, N. G. (2000) The savers–spenders theory of fiscal policy, American Economic Review, 90 (2), 120--125.

Rubin, D. B. (1976) Inference and missing data, Biometrika, 63, 581--592.

Rubin, D. B. (1987) Multiple imputation for nonresponse in surveys, New York: John Wiley & Sons, Inc.

Shapiro, M.D. and Slemrod, J. (1995) Consumer response to the timing of income: evidence from a change in tax withholding, American Economic Review, 85 (1), 274--283.

Shapiro, M.D. and Slemrod, J. (2003a) Consumer response to tax rebates, American Economic Review, 93 (1), 381--396.

Shapiro, M.D. and Slemrod, J. (2003b) Did the 2001 tax rebate stimulate spending? Evidence from taxpayer surveys,

Poterba, James, Tax Policy and the Economy. Cambridge: MIT Press.

Souleless, N. S. (2002) Consumer response to the Reagan tax cuts, Journal of Public Economics, 84, 99--120.