Consumer response to child tax credit |
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Authors: | Norbert Michel Nazneen Ahmad |
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Institution: | 1. Department of Economics and Finance, Nicholls State University, P.O. Box 2015, Thibodaux, LA, 70310, USA 2. Department of Economics, Weber State University, 3807 University Circle, Ogden, UT, 84408, USA
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Abstract: | This article uses micro-level data from the Consumer Expenditure Survey (CEX) to study consumers?? spending responses to the child tax credit. The article provides one test of the permanent-income hypothesis (PIH) that infers that temporary changes in income have little effect on consumer spending, at the initiation of the child tax credit in 1997, and a second PIH test when the credit was increased in 2003. The evidence supports the PIH in both 1997 and 2003, even using three different proxies for liquidity-constrained households. Separate from any PIH implications, our findings suggest the child tax credit did not provide a short-term consumption stimulus in either of the time periods studied. Our results therefore cast some doubt on whether this type of tax credit should be considered sound fiscal policy. |
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