Economic Stimulus Act of 2008 Essay

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Fiscal policy is defined as a government spending policy that influences macroeconomic conditions (Investopedia, 2009). The business side of the Stimulus Act is essentially a tax policy in disguise, because the net effect of the stimulus is a reduction in taxes paid. However, the tax rate is not specifically addressed.

On the individual side, the stimulus is strictly microeconomic in nature and is not policy related. It is essentially a cash handout. Thus, on the whole the bill cannot genuinely be considered a component of fiscal policy. Rather, it is a one-time cash giveaway.

There is a potential multiplier effect of this legislation, but that effect is likely overestimated by the government. In principle, this influx of cash into the economy will lead to increased consumer demand and increased corporate spending. However, declining consumer confidence means that much of the stimulus money went into savings.

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Likewise, businesses were not enticed by the moderate increases to their net incomes that resulted from the stimulus, certainly not to the extent that they were willing to embark on bold new projects in the face of severe economic downturn. It is therefore unlikely that the bill had its intended multiplier effect. Consumers did not spend the money, and thus did not drive profits higher, which did not entice businesses to increase investment. As a stimulus package, it lacked adequate multiplier effect and therefore failed to adequately stimulate the economy. The lack of success of the Act likely can be traced to its poor structure - it was not true fiscal policy and therefore did not effect the economy in the way that true fiscal policy would have.

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