Economic Snapshot | Wages, Incomes, and Wealth

What happened with the rebate checks?

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Snapshot for December 12, 2001.

What happened with the rebate checks?
Beginning in July, the U.S. Treasury sent tax rebate checks to some households ($300 or less for individuals and up to $600 for couples). The total amount that was sent out added up to close to $40 billion. What happened to this money?

Household data are not readily available, but aggregate data for the entire economy are. The data reflect that households received about $40 billion in additional disposable income, mainly during August and September (see figure below). However, the data also showed that households spent a total of $42 billion less than would have been expected given the rise in income following the rebate checks.

Changes in income and spending, July - October 2001

The impact of September 11 explains only a relatively small amount of this lack of consumer spending, mainly because the effects of the attacks were temporary. Comparing actual spending of households to what they would have spent absent the attacks shows that consumption dropped dramatically in September and rose quickly in October. As a result, the consumption lost due to the terrorist attacks appears to be a little more than $2 billion, which is only a tiny fraction of a $10 trillion economy.

To put this differently, households put almost all of their additional income from the rebate checks toward increased savings or repaying their debt. It is possible, however, that households will use the additional income to increase their spending during the holiday season in November and December.

This week’s Snapshot by EPI economist Christian E. Weller.

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