The Stimulus Package

Ideological bookends Paul Krugman and Lawrence Kudlow each make valid points about the Bush stimulus package. Krugman writes

The price tag of the overall plan is a whopping $600 billion, yet less than $100 billion will arrive in the first year.

Because the program is focused on tax cuts, and because temporary tax cuts tend to be ineffective, the Bush program is not well front-loaded. A temporary revenue-sharing program with the states would be more front-loaded, although there would be lags in the effect of the revenue sharing on the state budget processes.

Kudlow argues that cutting dividend taxes will increase corporate transparency by encouraging corporations to pay higher dividends.

investors will more often judge corporate creditworthiness on the basis of dividend yields (dividends divided by stock prices) instead of conflicted research reports. In fact, greater dividend payouts and yields will become the key benchmarks in judging the worth of stock investments.

Discussion Question. How can forecasters predict the effect of a shift toward dividend payouts on the risk premium, the level of investment, and economic growth?