Temporary tax cuts tend to have little effect on household consumption spending.

Question

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Research has shown that temporary tax cuts have little effect on household consumption spending. This is because households tend to view the tax cut as a one-time windfall and are reluctant to adjust their spending patterns based on it. They are more likely to save the extra money or use it to pay down debt rather than increase their consumption spending. Conversely, permanent tax cuts have a stronger effect on consumer behavior as they provide a more predictable boost to household disposable income.

Temporary Tax Cuts Tend to Have Little Effect on Household