Do household handouts help?

23 September 2009The evidence suggests that one-off payments can play an important role in cushioning a downturn, writes Andrew Leigh in andrewleigh.com


HOW EFFECTIVE are household handouts in kickstarting a flagging economy? Are they a fast and effective means of boosting demand? Or are stimulus payments like taking a bucket of water from the deep end of a pool and dumping it into the shallow end (as George Mason University economist Russell Roberts has argued)?

Compared with infrastructure projects – which typically take over a year to commence construction – sending cheques to households has the virtue that it can be done in a few months. Yet there has been considerable debate in the academic literature over their efficacy. For Australians, this debate is more than an academic bunfight: if household handouts are always saved, the federal government just sent out $20 billion to no effect...

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Photo: Brian Pamphilon/ iStockphoto

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