LectureNotesDays9-10.Real_world_multiplier.money

O rule of thumb proposals that put money in the hands

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o rule-of-thumb: proposals that put money in the hands of low, middle-income people generally provide more short-term stimulus than those that put money in the hands of high- income people, because low- and middle-income people are more likely to spend quickly any additional income. o Most roll in later (over ten years, not current)
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o More than half of the Administration’s package consisted of elimination of taxation of corporate dividends. Would generate less than a dime of short-term stimulus for each dollar of revenue lost. Table 5 President’s 2003 Stimulus Proposal Percent of proposed tax-cuts that: Have high “bang for the buck” 19% Affect economy in the short run 21% Are effective stimulus 4% Source: Center on Budget and policy priorities “Regardless of how one views the specifics of the [2003] Bush [tax cut] plan, there is wide agreement that its purpose is a permanent change in the tax structure and not the creation of jobs and growth in the near-term.” February 2003 and signed by 10 Nobel Price-winning economists and 450 other economists. Relative “Bang for the Buck” of Various Proposals Currently Considered for Stimulus in 2008 Demand generated per dollar of cost High “Bang for the Buck” Temporary increase in Food Stamp benefits $1.73 Extended UI benefits $1.64 State fiscal relief $1.36 Refundable, one-time lump-sum tax rebate $1.26 Increase Child Tax Credit $1.04 Non-refundable, one-time lump-sum tax rebate $1.02 Lower “Bang for the Buck” Extended Alternative Minimum Tax patch $0.48 Dividend and capital gains tax cuts made permanent $0.37 Corporate tax rate cut $0.30 Extension of Bush income tax cuts $0.29 Accelerated depreciation for businesses $0.27 Source: Center for Budget and Policy priorities, “BONUS DEPRECIATION TAX CUT UNLIKELY TO PROVIDE EFFECTIVE ECONOMIC STIMULUS By Chye-Ching Huang and Chad Stone 9/10/2008, ; and Mark Zandi, testimony before the House Committee on Small Business hearing titled, “Economic Stimulus For Small Business: A Look Back and Assessing need for Additional Relief,” July 24, 2008. Bang-for-the-buck estimates reflect the resulting change in Gross Domestic Product in the year after spending occurs.
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