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Originally Posted by guppy
making gasoline cheaper and giving people more money to purchase gasoline with will both increase demand.
tax cuts just get rid of the middle man.
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When do you spend your tax refund? During the year, or at the end of the year when you get it in the mail (or in the days/weeks between filing and getting the check in the mail). The vast majority of Americans base their spending behavior on having the cash in hand or waiting for the check to come in the mail. The lesson here is that you will have little demand increase from the tax rebate.
Furthermore, if the rebate becomes substantial enough, the less likely that it will be used to retroactively pay for gas that was purchased. If you get a check for $100, will you put it in the bank to pay yourself back for the money that you couldn't save because you bought extra gas in anticipation of receiving the rebate? Given the low savings rates in the US, which creates the necessity for foreign capital inflows to fund our economy, the answer is that the tax rebates won't be spent towards gas. They will fund a fun Friday night at the bar, fund a nice dinner, fund a day at the spa, etc.
The economics theory is crystal clear, and the behavior of consumers supports theory.