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A Tax Rebate in A Recession: Is It Safe and Effective?

Author

Listed:
  • Kenneth Lewis

    () (Department of Economics,University of Delaware)

  • Laurence Seidman

    ()

Abstract

Is a tax rebate safe and effective? Simulations with an empirically-tested macro-econometric model are used to estimate the impact of the actual 2001 tax rebate in the U.S. and of a rebate twice as large repeated in three additional quarters, and the results of the simulations are interpreted in light of two important recent empirical studies of the spending of the 2001 rebate by households. Our simulations show that as long as a tax rebate is temporary and detriggered when the recession ends, its use during a recession does not pose a significant debt or inflation problem. We find that at the end of one year the larger repeated rebate would have reduced the unemployment rate from 5.9% to at least 5.2%. Thus, a triggered tax rebate is a safe and effective anti-recession policy.

Suggested Citation

  • Kenneth Lewis & Laurence Seidman, 2005. "A Tax Rebate in A Recession: Is It Safe and Effective?," Working Papers 05-20, University of Delaware, Department of Economics.
  • Handle: RePEc:dlw:wpaper:05-20
    as

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    File URL: http://graduate.lerner.udel.edu/sites/default/files/ECON/PDFs/RePEc/dlw/WorkingPapers/2005/UDWP2005-20.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Recession; Fiscal Policy; Tax Rebate;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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