|
Next month, the U.S. Treasury begins distributing economic stimulus tax rebates to more than 130 million
households. The hope is that Americans will spend their checks immediately to bolster the economy.
But does the government's decision to refer to the checks as a "rebate" actually encourage people to save the
cash rather than spend it?
A June 2006 behavioral study, "Bonus
or Rebate? The Impact of Income Framing on Spending and Saving,"
found that characterizing -- or "framing" -- the payment as a "rebate"
instead of a "bonus" or "windfall" makes people more likely to save
the money instead of spending it and giving the economy a short-term
boost.
Nicholas Epley says that's exactly what happened after President Bush signed 2001 tax rebate legislation.
Epley is a professor of behavioral science at the University of Chicago Graduate School of Business. He conducted the
behavioral study with colleagues Dennis Mak and Lorraine Chen Idson of Harvard University in Cambridge, Mass. The
National Science Foundation funded
the study.
 |
| How will you use the tax rebate? |
|
|
|
|
|
Follow-up studies after the 2001 rebate showed that only 28 percent of taxpayers surveyed nationally said they
spent most of their $300 refund ($600 for joint filers) shortly after receiving it.
For this year's rebate, the government has doubled the cash back, sending out checks up to $600 ($1,200 for joint
filers) to taxpayers as part of a $168 billion economic stimulus package. This represents about 1 percent of America's gross domestic
product. (Some taxpayers with children will receive an even higher rebate.)
Nonetheless, Epley expects that people will repeat their 2001 behavior and again hold on to much of their rebates,
softening any potential boost to the economy.
"If the economic stimulus package is intended to get people to spend and increase consumption, pitching the tax rebate
in this way is not going to lead people to spend it at as high a rate as they might like," says Epley. "We don't know by how much, but
the data from our experiment suggest that it might be quite substantial."
Money back vs. found money
First, a note from Webster: A "rebate" is a return of an amount paid, whereas a "bonus" is an extra payment over and above regular
remuneration.
Psychologically, a rebate describes a return to a previous wealth state, while a bonus describes a monetary change
for the better.
|
