Replication data for: Can Tax Rebates Stimulate Consumption Spending in a Life-Cycle Model?

Principal Investigator(s): View help for Principal Investigator(s) Jonathan Huntley; Valentina Michelangeli

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Project Citation:

Huntley, Jonathan, and Michelangeli, Valentina. Replication data for: Can Tax Rebates Stimulate Consumption Spending in a Life-Cycle Model? Nashville, TN: American Economic Association [publisher], 2014. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2019-10-12. https://doi.org/10.3886/E114286V1

Project Description

Summary: We build a life-cycle model with earnings risk, liquidity constraints, and portfolio choice over tax-deferred and taxable assets to evaluate how household consumption changes in response to shocks to transitory anticipated income, such as the 2001 income tax rebate. Households optimally invest in tax-deferred assets, which are encumbered by withdrawal penalties, and exchange taxable precautionary savings for higher after-tax returns. The model predicts a higher marginal propensity to consume out of a rebate than is predicted by a standard frictionless life-cycle model. Liquidity-constrained households—with few financial assets or portfolios expensive to reallocate—consume a higher fraction of the rebates.

Scope of Project

JEL Classification:
      D91 Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
      E21 Macroeconomics: Consumption; Saving; Wealth
      G11 Portfolio Choice; Investment Decisions
      H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes

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Published Versions

V1 [2019-10-12]

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