Governments sometimes issue payments to taxpayers that are known as tax rebates. The United States government issued rebates in 2001 and 2008 as a form of economic stimulus. Rebates differ from income tax refunds, issued when people overpay their income taxes.

Identification

A government tax rebate is a sum of money that the government issues to taxpayers, usually in the form of a check for a flat amount.

Function

During a sluggish economy, governments sometimes issue tax rebates as an economic stimulus, intended to get consumers to spend more. The U.S. government under President George W. Bush issued rebates in 2001 and 2008, as the economy entered a recession.

Significance

Government tax rebates are intended to encourage more consumer spending, a key factor in the nation's gross domestic product (GDP).

Effects

A 2002 study by the University of Michigan and the National Bureau of Economic Research found that the 2001 tax rebates did little to stimulate consumer spending.

Types

Government tax rebates come in other forms besides rebate checks. One form is the sales tax holiday, in which state governments waive the state sales tax on certain items. In some states, governments waive sales taxes on children's clothes and school supplies on weekends prior to the beginning of a new school year.

Misconceptions

A tax rebate differs from an income tax refund. Under the latter, the government returns money (interest-free) that a taxpayer overpaid during the year for his federal income taxes.

Source:

Did the 2001 Tax Rebate Stimulate Spending?

Resource:

New York Times Economics Blog: Do Tax Rebates Work?