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The Reaction of Household Consumption to Predictable Changes in Social Security Taxes
Abstract
The key implication of rational expectations and the basic life-cycle/permanent-income hypothesis: that predictable changes in income have no effect on the growth rate of consumption expenditures, is examined. This implication is important for understanding the effectiveness and optimal timing of fiscal policy, the causes and propagation of business cycles, and the effects of income fluctuations on the growth rate of the economy. Using household-level consumption data from the Consumer Expenditure Survey, whether expenditures on nondurable goods increase contemporaneously with predictable changes in Social Security tax withholding is tested. It is found that households do change their consumption expenditures in response to the predictable fluctuations in income induced by the Social Security tax system.
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Citations
Cited by
Understanding the Effects of Government Spending on Consumption
Galí, J., López-Salido, J. D., & Vallés, J. (2007) · Journal of the European Economic Association · doi:10.1162/jeea.2007.5.1.227 · Cited by 1,922
Gross, D. B., & Souleles, N. S. (2002) · The Quarterly Journal of Economics · doi:10.1162/003355302753399472 · Cited by 867
Monetary Policy and the Redistribution Channel
Auclert, A. (2019) · American Economic Review · doi:10.1257/aer.20160137 · Cited by 773
The Consumption Response to Income Changes
Jappelli, T., & Pistaferri, L. (2010) · Annual Review of Economics · doi:10.1146/annurev.economics.050708.142933 · Cited by 704
Benhabib, J., & Bisin, A. (2005) · Games and Economic Behavior · doi:10.1016/j.geb.2004.10.004 · Cited by 285
Metadata
- Authors
- Parker, J. A.
- Venue
- American Economic Review
- Publisher
- American Economic Association
- Published
- 1999-09-01
- Volume
- 89
- Issue
- 4
- Pages
- 959-973
- ISSN
- 0002-8282 (ISSN-L)
- OpenAlex
- W2007666642
- Cited by
- 551
- References
- 0
- FWCI
- 33.13
- Type
- journal article
- Language
- en
- Open access
- closed
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- Parker, J. A. (1999). The Reaction of Household Consumption to Predictable Changes in Social Security Taxes. American Economic Review. https://doi.org/10.1257/aer.89.4.959
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