Current Issues in Economics and Finance
The Effect of Tax Changes on Consumer Spending
December 2001 Volume 7, Number 11
JEL classification: E21, E62, E65

Author: Charles Steindel

Many supporters of the tax cut enacted this summer viewed it as an important stimulus to consumer spending. But an analysis of the effects of earlier income tax cuts suggests that the consumer response to such initiatives is, in fact, quite variable. Two conclusions stand out: First, consumers will be more likely to boost spending if the change in tax liabilities is permanent. Second, consumers will wait to increase spending until a tax change affects their take-home pay.

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