What Kind of Stimulus Package

1
What Kind of Stimulus Package?

• Suppose it turns out that the Federal Reserve
  cannot cut real interest rates enough to preserve
  full employment. What kind of fiscal stimulus
  would be preferable a tax cut or a spending
  increase?
• A spending increase delivers more for each dollar
  fall in the surplus a tax cut wont do the same
  work because households wont spend all of it.
• Programs that deliver money to cash-starved
  households--a boost to unemployment
  insurance--work more quickly than regular
  spending, which works more quickly than a tax cut
  for those not cash-starved.
• However, what households buy with a tax cut is
  what they value most. What government buys
  depends on politics it could be high-value
  public goods (if the political process works
  well) or low-value "pork-barrel" spending (if the
  political process works less well).