A stimulus check is a check sent to taxpaying recipients from the government.
What Is Stimulus Check?
Stimulus checks are given to boost the economy by providing consumers with money to spend. Consumer spending is an essential component of a healthy economy and, in times of economic difficulties, it usually contracts. Therefore, the government will provide stimulus checks to maintain the consumer outlook strong and to promote spending.
A stimulus check will be either sent via mail to taxpayers or provided as an equivalent tax credit. People with unpaid taxes will usually see the checks automatically applied to their outstanding amount bill. Stimulus checks are a form of fiscal policy, which means it is a policy used by the government to try and influence the economic conditions of a country.
The government can lower taxes to spike consumption and saving among businesses and consumers. In a recession, a stimulus check can push businesses and individuals to invest or spend more with their higher disposable wages. With higher consumption, demand will increase, and, in turn, businesses will employ more employees. With higher demand for labor, wages will increase, which, in turn, increases consumption in a virtuous cycle.
The Fiscal Policy
Fiscal policy refers to government spending and taxation policies used to influence the whole economic status of a country. Fiscal policy is distinct from monetary policy, which is not associated with the central bank of a country. Instead, it is a policy implemented by the government itself. The government utilized fiscal policy in many ways, such as:
- Increasing or lowering government spending on projects
- Increasing or lowering the tax rates
A government may respond to a few measures in certain economic circumstances to prevent the economy from overheating or looming into recession. In the case of an overheating economy, a government can act through contractionary fiscal policy, where it lowers government spending and increases taxes to calm down the economy.
A stimulus check can be viewed as a type of decreasing taxes to spike consumption.