Millions of households started receiving their gift checks from the federal government two weeks ago as part of the economic stimulus package signed into law earlier this year. The checks are making their way into bank accounts as the U.S. economy struggles with a possible recession.

Ever since the Great Depression, recession fears have brought about a populist response from the federal government in the form of rebates and other "gifts." Most recently, in 2001, as the economy entered a recession, tax rebate checks of between $300 and $600 were mailed out to about two-thirds of U.S. households. The underlying belief is that such payouts, especially to lower-income households, will stimulate consumer spending —- which accounts for the biggest chunk of gross domestic product —- and thereby boost employment and incomes as businesses rush to meet increased demand.

But despite hopes —- and enticements from retailers offering free rebate-check cashing, coupons and added value to gift cards —- that cash-strapped consumers will go out and spend their windfall, in reality the tax rebates won't do much to help the ailing economy get back on its feet.

The economy is crippled by a housing crisis and credit crunch of alarming proportions; debt-burdened households that are shopping more at Wal-Mart than at Target; soaring oil and commodity prices that are stoking fears of inflation; a softening job picture; a weak dollar that makes imports more expensive; and a volatile stock market. Consumers are seriously worried about their jobs and the economy. Any extra dollars that end up in their pockets will certainly not be used for discretionary spending.

The 2001 tax rebates failed to coax consumers into spending. University of Michigan economists Matthew D. Shapiro and Joel B. Slemrod found in their research in 2001 that only about 22 percent of households planned to spend their rebates, with their follow-up survey showing similarly low levels of spending. This time around, the macroeconomic picture is bleaker. Compared with 2001, prices of bare necessities such as food and oil are much higher, and the debt levels of households have risen just as home prices are sliding.

Last December, Oregon residents received a windfall resulting from a state revenue surplus. So-called "kicker" checks totaled $1.1 billion. According to The Oregonian newspaper, in the two weeks following receipt of the checks, gambling in the state's video poker and slot machines increased by about $36 million, suggesting that consumers will not be spending much of their rebates on entertainment and luxury items.

A UBS Securities-commissioned survey found that 43 percent of respondents said they would pay off debt with their federal tax rebates, 26 percent would save it, and only 24 percent would spend it.

It is therefore clear that while there will be a spike in spending at the mall and supermarket, more debt repayment and fatter savings accounts, the tax rebates are unlikely to result in large increases in the quantities of goods and services purchased.

Based on my calculations using U.S. Census Bureau data on income distribution for Georgia, total tax rebate payments from the federal government could be roughly estimated as high as $2.3 billion. Assuming that consumers behave in accordance with their response to the UBS Securities survey, rebate payments in Georgia would result in only about $500 million in increased spending and an increase in debt payments of less than $1 billion.

Will this trigger an economic recovery? It is highly unlikely, since the additional income that will be received is barely sufficient to cover the higher cost of goods and services.

What is more likely to have an impact on the economy over the next year is increased spending by small businesses, which should trickle down to consumers. Under the 2008 Economic Stimulus Act, small businesses are allowed to write off 50 percent of some of their capital expenditures as depreciation this year. In addition, the limit on expenses that can be deducted from income was doubled to $250,000. These incentives will still affect consumer spending because it will allow people employed by small businesses to stay on their jobs and keep spending, thus stimulating the economy. Such incentives are likely to have a bigger and longer-lasting effect on the economy, as business owners will find it worthwhile to purchase more capital equipment.

Provided, of course, that banks are willing, and able, to make loans.

> Govind Hariharan chairs the Department of Economics at Kennesaw State University.