How to get bang from the stimulus buck

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What kind of fiscal stimulus would have the most impact on the economy? Moody’s has made estimates for various different stimulus proposals of the one-year change in GDP for each dollar in government spending or tax cuts. Here are some examples:

Non-refundable lump-sum tax rebate: $1.01

Refundable lump-sum tax rebate: $1.22

Payroll tax holiday: $1.28

Across-the-board tax cut: $1.03

Make Bush income tax cuts permanent: $0.31

Cut corporate tax rate: $0.30

Extend unemployment benefits: $1.63

Temporary increase in food stamps: $1.73

General aid to state governments: $1.38

Increased infrastructure spending: $1.59

These are all estimates churned out by a model, not hard facts. chief economist Mark Zandi says the model assumes that getting money to people with lower incomes has a bigger impact “because their saving rates are lower and they’ll spend more quickly.” It also rates government spending as more effective than tax cuts because (a) a portion of tax cuts is saved, not spent and (b) consumer spending tilts more toward imports than government spending does. The long-term growth benefits both of certain tax cuts and of infrastructure spending aren’t factored in to the model–since it’s only estimating the one-year change in GDP.