Characteristics of Various Policies as Short-Term Economic Stimulus
Policy		Cost-Effectivenessa	Length of Lag from Enactment to Stimulusb	Uncertainty About Policy's Effects	Comments
Individual Tax Proposals
Lump-Sum Rebate		Large	Medium	Large	A rebate is generally likely to be more effective the more it is focused on people who are likely to spend it. A rebate whose size increases for people with larger tax liabilities is likely to be less effective than a uniform refundable one. Experience is mixed with respect to effectiveness, introducing some uncertainty about the rebate's effect. Processing and mailing the rebate checks would take some time.
Temporary Tax Reductions
	Withholding Holiday for the Employee Payroll Tax	Large	Medium	Large	Some evidence suggests that consumers spend more of a dollar rise in take-home pay than of a dollar rebate. But a brief holiday, such as a month, might be viewed the same as a rebate, which could reduce the stimulus. Particularly complex variants may introduce some delays in implementation. Applying a holiday to the employer side of the payroll tax is unlikely to be cost-effective.
	Across-the-Board Tax Rate Cut	Small	Short	Small	Much of the tax reduction goes to upper-income people, who are less likely to spend it.
Deferring or Eliminating Scheduled Tax Increases
	Extending the AMT Patch	Medium	Long	Medium	Taxpayers may expect, on the basis of experience, that the patch will be extended, so failure to extend it may weaken consumption. However, affected taxpayers are likely to be in upper-income groups and therefore are not likely to change their spending much in response to a temporary delay of higher taxes. In addition, they may not know they are affected—in which case the growing AMT liability will not affect their behavior in 2008.
	Deferring or Eliminating Tax Rate Increases Under EGTRRA or JGTRRA	Small	Long	Small	Whatever its long-term effects on work incentives and investment, changing the schedule of tax rates in 2011 and beyond is unlikely to have much effect on short-term demand in 2008.
Business Tax Proposals
Cut in Corporate Tax Rates		Small	Long	Small	Corporate tax rate reductions have only a limited effect on new investment decisions and may take time to affect business investment because capital spending decisions are often made in advance. Improved cash flow may, however, have some effect on investment decisions, especially among smaller firms.
Incentives for New Investment		Medium	Medium	Large	Most of the stimulus appears to come at the end of the period of the incentive. But a short incentive period may not be effective if it does not allow businesses enough planning time. The last time such incentives were employed, the results were not encouraging. Analysts are consequently less confident in them.
Extending Operating Loss and Carryback Provisions		Small	Medium	Large	These provisions have little effect by themselves, although improved cash flow may have some effect on firms facing difficulty in accessing outside capital. Perhaps more important, these provisions can enhance the effectiveness of investment incentives.
Spending Proposals
Direct Transfer Payments to Households
	Extending or Expanding Unemployment Benefits	Large	Short	Small	These benefits are regularly extended in recessions, and most of any additional benefits are likely to be spent quickly.
	Temporarily Increasing Food Stamp Benefits	Large	Short	Small	Additional benefits are likely to be spent rapidly by recipients, who tend to be experiencing periods of economic difficulty.
Providing General Aid to State and Local Governments		Medium	Medium	Large	States vary in their response to revenue shortfalls. Aid to states could be implemented through an adjustment to the federal Medicaid matching rate.
Investing in Public Works Projects		Small	Long	Small	These projects are likely to involve expenditures spread out over a long time and also take a long time to get under way.
Source: Congressional Budget Office.
Note: AMT = alternative minimum tax; EGTRRA = Economic Growth and Tax Relief Reconciliation Act of 2001; JGTRRA = Jobs and Growth Tax Relief Reconciliation Act of 2003.
The impact on aggregate demand that the policy would generate in a given quarter, relative to its lifetime budget cost.
Approximate time between enactment and when the policy would have achieved the bulk of its effect on aggregate demand. “Short” means less than about a half year. “Medium” means from about a half year up to a year. “Long” means more than a year.