The Economic Stimulus Package: Will It Work, and for Whom?

The 2008 rebate should stimulate the economy much as the earlier one did, Souleles says, though its features are somewhat different. The current plan is richer: It is expected to cost $152 billion in 2008 and $16 billion in 2009, compared to $38 billion in 2001. In the new plan, rebates will average $600 for individuals and $1,200 for couples filing joint returns, plus $300 for a dependent child. That's twice the 2001 level.

In the earlier package, rebates were paid to all taxpayers regardless of income. The current one has phase-outs to provide the bulk of the money to households of low and moderate income. The payout will be reduced by 5% for every $1,000 an individual makes in excess of $75,000, or that a couple makes above $150,000.

Even people with little or no tax liability can qualify for a minimum of $300 per individual or $600 per couple in the current program, so long as they file a tax return reflecting at least $3,000 in income. Taxpayers will qualify based on their 2007 tax returns, due by April 15, and checks will be mailed beginning in May. Another chief difference: The 2001 program was part of a 10-year reduction in income-tax rates for all taxpayers, while the 2008 payment is one-time-only.

People were especially likely to spend their 2001 rebates because they knew further tax savings would follow, Souleles says. While the current program does not have that spending incentive, this may be offset by its greater emphasis on people of low and moderate incomes. "You can judge these policies by their goal, and it's very much a goal of short-term stimulus," Souleles says. "It would follow that you would want to disproportionately target these things to the households that are likely to spend them... the constrained households."

Zandi agrees. "I think it's a good tax rebate as far as rebates go...," he says. "It is targeted to the right people, who are more likely to spend it quickly.... I think it will be enough to get the economy growing, along with low interest rates."

The Check Is in the Mail

But the stimulus package may not have the same effect everywhere, notes Wharton finance professor Nikolai Roussanov. Two households with the same income may experience an economic downturn very differently depending on where they live, he says. The family in a high-cost region like California will feel the downturn more severely and respond by spending the rebate on necessities like food. The family in a low-cost region such as the South may not be hurting as badly, and will be more inclined to spend the rebate on luxuries, or to save it. Therefore, says Roussanov, it is very hard to predict how well the stimulus package will work. "The same dollar of income buys different consumption bundles for people in different parts of the country."

A boost in consumer spending will not come for some time. Checks will start flowing in May, but it could be summer or fall before consumers have their rebates and decide what to do with them.

According to Kent Smetters, Wharton professor of insurance and risk management, such delays make fiscal stimulus a clumsier way to deal with short-term economic problems than monetary policy -- Fed rate cuts. "I tend to lean more toward using monetary policy for short-term things, and using fiscal policy to get the long-term things right," he says, adding, "We typically think monetary policy is a little quicker.... By the time these [rebate] checks come out, who knows where the economy will be?"