Leslie McGranahan

Consumption Responses to Temporary Tax Incentives: Evidence from State Sales Tax Holidays

Every year over 20 states offer sales tax holidays (STHs) on specific items like clothes, shoes and other items to encourage consumption, affecting over 100 million consumers. We use a unique dataset of credit cards transaction to study the spending response to these holidays. Using a diff-in-diff methodology, we find that STHs increase overall daily spending by 8%, with large percentage increases in spending on children’s clothes and shoes of 193% and 98% respectively. Consumers with children increase spending more during STHs. Our estimates of price elasticities range from 6 for big box merchants to 30 for kids clothing merchants (in absolute terms). There is no evidence of inter-temporal substitution either before or after the STH or cross-product substitution away from non-treated goods. Finally, we show that consumers from across state borders also take advantage of these tax holidays and shop in states offering holidays. Our falsification tests rule out concerns that our results are driven by spurious correlations.States offer sales tax holidays (STHs) temporarily exempting items like clothes, shoes, and school supplies from the state sales tax. Spending response to these temporary tax changes are investigated using two datasets: the Diary portion of the Consumer Expenditure Survey and a unique dataset of credit card transactions. Results based on a difference-in-differences methodology show that there are substantial increases in spending on covered goods during these holidays that are not offset by declines in spending before or after the holidays.

Will Writing and Bequest Motives: Early 20th Century Irish Evidence

This paper develops a simple model of the decision to write a will prior to death and tests the implications of the model using data from Ireland prior to the advent of state provided old age support. The model assumes that individuals write wills in order to change the distribution of their assets from the distribution that would occur in the absence of a will and that individuals incur will writing costs. The model leads to the predictions that individuals whose desired distribution differs most dramatically from the default and those who face the lowest costs will be the most likely to write wills. A data set that matches individual Irish estate records from 1901 to 1905 to household records from the 1901 Irish Census is used to test these implications. I find that age, wealth, and landholding influence will writing. I also find that individuals, particularly women and non-landholders, who appear to be dependent on others in old age are more likely to write wills. This result suggests that will writers may be writing wills in order to repay the relatives who provided for them in old age and is consistent with a strategic bequest motive. The data provide little evidence that the characteristics of potential beneficiaries influence the will writing decision. In contrast to studies using modern data that find little evidence of altruistic or strategic bequest motives, I find some evidence that exchange motives partly governed the will writing decision.

The widow’s offering: inheritance, family structure, and the charitable gifts of women

This paper aims to explain disparities in the charitable bequest behavior of men and women. I use data on charitable bequests in wills from 17th Century Suffolk, England to investigate whether women or men were more generous to the poor when they died. Because of the difference in the legal restrictions faced by married men and married women, I choose to compare unmarried individuals. Higher proportions of unmarried men make charitable donations and men make higher average donations. I find that differences in the wealth, circumstances and family status of women can explain between 58% and 99% of the gap in the donation rate. In addition, I find that women’s attributes serve to depress their average donations. Based on these finding I conclude that women were not less generous than men despite the fact that a low proportion of total donations came from women.

Revenue Cyclicality and Changes in Income and Policy

The past two recessions have proved alarming to state government finances. In 2001, a relatively shallow national recession led to a severe downturn in state revenues that took three years to unwind. In the wake of the recent economic downturn, signs of fiscal stress are readily apparent. In this paper, we investigate whether the revenue patterns surrounding these two recessions are the result of state government revenues having grown more sensitive to economic conditions. We find that the responsiveness of revenues to measures of business cycle conditions has grown since the 1990s. We use data on state government revenues, state�?specific information on economic conditions, and measures of state policy to examine fiscal performance and budgeting practice over the economic cycle. Our findings suggest that increasing income cyclicality, in particular of investment income, has made state revenues more responsive to the business cycle since the mid�?1990s. We also find that changes in policy making have served to increase revenue cyclicality.

The Effect of Sales Tax Holidays on Household Consumption Patterns

Sales tax holidays (STHs) are the temporary suspension of state (and some local) sales taxes on selected retail items for a brief period of time. The policy has gained popularity in recent years, beginning in one state in 1997 and growing to twenty by 2008. Despite the increased frequency with which states use STHs, little research has been conducted to study how households respond to this temporary tax manipulation. Our paper offers the first household-level, microeconometric evaluation on the effect of STHs on household consumption patterns. We find that on STHs, households increase the number of clothing and shoes bought by over 49 percent and 45 percent, respectively, relative to what they buy on average. Further, we find that this increase in consumption is limited to children’s apparel and that the wealthiest households and households consisting of married parents and young children have the largest, statistically significant response to STHs; for example, households with incomes over

The Effects of the Earned Income Credit on the Seasonality of Household Expenditures

70,000 increase the number of children’s clothing items purchased by 136 percent, while households that consist of married parents and young children increase the amount spent on children’s clothing and shoes by 117 percent and 295 percent, respectively.