Bush Tax Refund and Consumer Spending and the Economy

THE JOHNS HOPKINS UNIVERSITY OFFICE OF NEWS AND INFORMATION3003 N. Charles Street, Suite 100Baltimore, Maryland 21218-3843Phone: (410) 516-7160 / Fax (410) 516-5251July 6, 2001

MEDIA ADVISORY

To: Reporters, Editors, Producers

From: Glenn Small 410-516-6094[email protected]

Re: Effect of Bush Tax Refund on Consumer Spending and the Economy

Notices are going out to millions of Americans letting them know they're due to receive a tax refund check in the coming weeks and months. But a Johns Hopkins economist who has studied consumer reaction to tax cuts in Japan says we shouldn't expect to see any rapid impact on the economy as a result of the tax windfall.

"The reaction to tax cuts tends to be rather sluggish," said Christopher Carroll, a professor of economics at The Johns Hopkins University. Carroll has written a paper for a forthcoming edition of the International Economic Journal that looks at the consumer reaction to permanent tax cuts in Japan.

While Carroll's work focuses on Japan, he said the logic applies to the United States as well. He said the evidence suggests that consumer spending is determined partly by habits which take some time to adjust to new circumstances, including tax cuts. While a modest percentage of households may spend their tax cut immediately, it may take a year or more before aggregate consumer spending has mostly adjusted to the tax cut.

Carroll has published research on the relationship between confidence and economic forecasting in the American Economic Review and other top economics journals. His research in this area stems from his former job as a staff economist at the Federal Reserve Board.

He has been called on to explain how consumer confidence rises and falls and how it affects the economy on such shows as The Diane Rehm Show and ABC News' Nightline.

To arrange for an interview with Carroll, you may e-mail him at: [email protected], or call him at 410-516-7602.

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