Behavioural scientists found that people given money as a lump sum are likelier to squirrel it away or pay off debt, but if they are given the same amount spread as smaller, monthly payments, they are more inclined to spend it.

The tax rebates were dished out from April 28 by the US Internal Revenue Service (IRS) under President George W. Bush's plan to stimulate the US economy.

The IRS is issuing payments of up to US$600 (S$823) to individuals, US$1,200 for married couples, plus US$300 for eligible children younger than 17.

Writing in a Dutch-based publication, the Journal of Economic Psychology, Ms Valrie Chambers and Ms Marilyn Spencer of Texas A&M University asked 141 students how they would spend the rebate.

The students were given these options in which to allocate some or all of the money: investing; reducing credit-card debt; paying off a mortgage; using the money for regular monthly expenses; buying a 'durable asset' such as furniture; and saving for an infrequently yearly expense, such as a holiday.

For rebates of US$300 or US$600, the students would save 81 per cent of the money on average and spend the remaining 19 per cent if they received the windfalls in a single shot.

But if these same sums were paid out in small monthly refunds, the picture was different. On average, 34 per cent of the US$300 would be saved and 66 per cent spent, while 60 per cent of the US$600 would be saved and 40 per cent spent.

The reason, suggest Ms Chambers and Ms Spencer, is that small payments are harder to track and thus get lost in the sauce of monthly expenditure.

But a large payment is noticeable and thus prompts a conscious decision about how to use it.

This important quirk of psychology is usually overlooked by politicians, they say. In the current economic climate, the instinct is to save, which means that less of the rebate will be spent.

'Traditional policy discussions have not examined potential effects of changing refund frequencies on taxpayer actions,' says the paper.

'Given tax rebate history, taxpayers may consider refunds as windfalls, not as permanent income. The amount of the refund, the type of tax change and the timing should be considered to achieve the desired public policy.'

This year's US rebates are available to individuals who have income of less than US$75,000 a year, or US$150,000 for a couple. The stimulus plan is expected to cost US$152 billion. -- AFP