Megan McArdle writes:
The real question, I think, is how close the permanent income hypothesis is to being true.
Well, there is some recent literature by John Seater (and co-authors) that suggests it is true (see here, here, and here).
She continues:
The basic idea is that people are forward looking, and they try to smooth their consumption over time. So if you give them a “temporary tax cut”, they save most of it, knowing that eventually they will have to give the money back.
But of course, this should also be true of “temporary government spending”–if people think the money won’t be there next year, they’ll salt as much of the money away as possible. This is a topic very underexplored in the various estimates of the stimulus multiplier, even though consumers are massively overleveraged and will presumably save as much of their new income…
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Utopia, you are standing in it! 
Apr 17, 2016 @ 10:19:46
such as shame the IMF show this to be absolute tosh and the multipliers quite large.
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