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Options for Fiscal Stimulus

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Publication Date: January 2008

Publisher(s): Tax Policy Center

Author(s): Jason Furman

Special Collection: John D. and Catherine T. MacArthur Foundation

Topic: Economics (Economic theory)

Keywords: Taxes, the Budget, and the Economy; Economic Stimulus; Taxation of Households; Distribution of Taxes and Income

Type: Report

Abstract:

The key to well-designed stimulus is to ensure that it is timely, temporary and targeted ? the "three T" principles enunciated by economists as diverse as Harvard Professors Lawrence Summers and Martin Feldstein, Federal Reserve Chairman Ben Bernanke and Congressional Budget Office Director Peter Orszag. Three of the options that best meet this test are (1) a refundable tax rebate that is adjusted for family size and phased out for high-income households; (2) a temporary extension and possibly expansion in unemployment insurance benefits; and (3) a temporary increase in food stamps. Furman's testimony discusses the underlying economic logic that motivates the three principles of fiscal stimulus, applies these principles to analyze a range of stimulus options, and describes in detail the design of an individual rebate.