A perception that the tax change is temporary. A perception that the tax change is permanent. A prior anticipation of this tax change. The certain knowledge that nothing is certain but death and taxes.
Permanent changes lead to greater changes.
The interest rate relevant for decisions about consumption and investment is the observed market interest rate if there is a free and unregulated market for capital assets. This is the Fisher equation. Consider an individual who earns income every period but can neither lend nor borrow at any point in time. Perm denote the marginal propensity to consume out of temporary and permanent changes in income. Perm, because without borrowing and lending, such liquidity-constrained consumers increase their expenditures as they receive more income regardless of whether it is permanent or transitory.