Econometrics Commons^™

Does Labor Supply Respond To Transitory Income? Evidence From The Economic Stimulus Payments Of 2008, David Powell

David Powell

Tax policy is often used to encourage consumer spending in recessions and a growing literature finds evidence that households increase short-term spending in response to receipt of tax rebates. The literature has largely ignored the effect on labor supply as rebates may crowd out labor earnings and households may consume additional leisure. The responsiveness of labor supply to transitory income has been underexplored more broadly so it is difficult to predict this labor supply effect. I exploit the randomized timing of the 2008 economic stimulus payments to study the effects of transitory income on monthly household labor earnings. Rebates can …