A proper stimulus? A wonkish look at tax rebates
(This is pretty interesting. Who benefits the most — and where does the rebate go? - promoted by Charley on the MTA)
{ This is part of a research paper I wrote for a seminar…I couldn’t post the data analysis b/c of formating issues 
It is a timely issue, as the direct deposits go out today and the checks later this week, I believe }
Economic stimulus payments in the form of tax rebate checks have been included in the federal government’s arsenal of counter-cyclical measures since the Tax Reduction Act of 1975 was signed by President Ford. The basic economic logic behind rebate checks is that spending is a function of absolute wealth; an increase in personal disposable income (PDI) should then accelerate consumption spending and lead to economic growth.
Studies on the effect of the 1975 tax rebate package-which totaled $8.1 billion and provided for a rebate up to $200-on consumption spending are mixed: Blinder (1981) estimated a 1.16 spending multiplier effect during the quarter the rebates were received and a sustained effect in several subsequent quarters; Poterba (1988) found an 18 to 25% increase in nondurable spending within three months of the rebates being received; Blinder and Deaton (1985), however, found no significant effect.
As discussed below, estimates of the effect of the 2001 tax rebates passed under the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) on consumption spending are also mixed. Nonetheless, Congress rallied in early 2008 to try to stave off an economic recession by passing a $168 billion stimulus package which includes tax rebates for taxpayers and low-income individuals. Under the 2008 rebate package, most taxpayers will receive a single check of up to $600 for single individuals and $1,200 for couples, with an additional $300 per child; low-income taxpayers and those who owe no taxes will receive $300 for singles and $600 for couples.
We can predict the efficacy of the 2008 rebates by examining the effect of the 2001 tax rebates on consumption spending through the use of consumer surveys, econometric analysis, and time-series data.