What is an Economic Stimulus Package?

During a period of national economic crisis, an economic stimulus package may be passed through the government to help the country. An economic stimulus package is a set of tax rebates and special business tax incentives meant to motivate a slow economy.

The rationale behind an economic stimulus package is that by giving people money to spend, a financial crisis may be diverted. Ideally, people will spend the money on purchases made in the country. This spent money will move through the system by increasing the demand on manufactured items. The factories will hire more people, or raise the pay of their current employees. As people begin making more money, they will be able to buy more. This cycle will continue until the economy pulls itself out of the slump, saving the country from a financial crisis.

The United States economic stimulus package of 2008 also included a business tax incentive. This tax incentive allowed businesses a depreciation tax deduction equal to half the cost of certain products. A product was eligible if it was expected to be used for less than twenty years. Examples of this would be computers, software, and other electronic equipment. This was to encourage businesses to buy new equipment, which would help to stimulate the economy. The stimulus package also included a way to allow larger home mortgage loans, with the hope that the housing market would pick up.

In the real world, an economic stimulus package may not have the results that government leaders hope for. As seen in the 2008 United States economic stimulus bill, people often save the money, or spend it paying off bills. While bill paying does help the United States economy, it does not do as much using that money to buy American-made products. People who saved the money may not have even put it into banks, choosing instead to hide the money at home in case the banks failed.

An economic stimulus package is, in theory, a great idea. If the citizens of a country understand how to wisely use the money to stimulate the economy, the program may be more successful. Another way to increase the success of an economic stimulus package is to time the pay-out around a busy spending period, such as the holidays. A lot of good can be done by an economic stimulus package, if it is properly implemented.