THE cheques are in the post. Last month, the US government began mailing tax rebates to over 130 million households. The payments, many worth hundreds of dollars, are designed to get consumers spending and breathe new life into the country鈥檚 stagnating economy.
But the plan is unlikely to have much impact, according to two economists. Their research suggests that people are much more likely to spend such rebates if they are divided into monthly payments rather than given as a lump sum.
To test the effectiveness of the government鈥檚 鈥渆conomic stimulus payments鈥�, Valrie Chambers and Marilyn Spencer at Texas A&M University, Corpus Christi, asked 140 students how they would spend various sums of money. Students offered a one-off rebate of $600 鈥� the maximum payment to individuals without children under the stimulus plans 鈥� said they would spend just $113 on average. In contrast, students receiving 12 payments of $50 said they would spend around $420 (Journal of Economic Psychology, ).
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Chambers suggests this is because people find it harder to keep track of smaller payments and just add them to their monthly budget. 鈥淭he government thinks that $100 a month is the same as $1200 once a year,鈥� she says. 鈥淭hat鈥檚 true mathematically, but not behaviourally.鈥� She plans to track how people spend the rebates.
鈥淭he government thinks $100 a month is the same as $1200 a year. That鈥檚 true mathematically, but not behaviourally鈥�
A US Treasury spokesperson says the payments were sent out in a single chunk because the goal is to get the money into the hands of consumers as quickly as possible.
The strategy of providing rebates to stimulate the economy has been criticised before. One study suggested that people are far more likely to spend the money rather than save it if it was called a bonus not a rebate.
Research from previous rebate seasons has also yielded mixed results. A 2001 survey of US taxpayers waiting for rebates found that three-quarters planned to save the money. Another study confirmed that many people initially used the money to pay off credit card debt. However, further studies have suggested that two-thirds of the 2001 money was spent in the three months after it was received.
Focus on America 鈥� Delve into the science and technology questions facing the USA in our special report.
