The Response of Consumer Spending to Rebates During an Expansion: Evidence from the 2003 Child Tax Credit

In the summer of 2003, the US government mailed around $14 billion in child tax credit payments to millions of households. Using special questions added to the Consumer Expenditure Survey, we estimate the change in consumption expenditures caused by receipt of these payments, by comparing the spending of households that receive payments in a given period to the spending of those that do not. On average, households spent about a quarter of their payments on nondurable consumption goods during the three-month period in which the payments were received. There is also less precisely estimated evidence of an ongoing but smaller response in the subsequent three-month period, so that roughly one-third of the payment was spent cumulatively during the quarter of receipt and subsequent three-month period. These responses are larger for households with relatively low liquid wealth or low income, which is consistent with their facing binding liquidity constraints.