I have blogged here and here about fiscal multipliers for different policy choices. Among the different fiscal stimulus spending choices, there is heated debate on the relative effectiveness (in terms of its bang for the buck or fiscal multiplier) of tax cuts and direct spending.
In the US, with the controversial Bush original tax cut in place since June 2001, set to expire by end of this year, there is an intense debate raging about its future. Republicans expectedly want them to continue and made permanent, whereas Democrats are broadly converging to the view that it should expire for those with incomes beyond $250,000.
Mark Zandi has this revised and latest examinaton of the fiscal multipliers of various stimulus measures.
As can be seen, direct government spending - through unemployment benefits, food stamps, work sharing or infrastructure spending - top the list, giving more than a dollar's worth of stimulus for a dollar's worth of spending, while cuts to taxes affecting businesses and upper-income individuals - such as the corporate, dividend, capital gains and alternative minimum taxes - gives much less.
However, since tax cuts are politically easier to push through, tax rebates aimed at those likely to spend (as against save it), jobs tax credit to spur investment and hiring, and cuts in payroll tax (which finances Social Security and Medicare and is paid by both businesses and workers) may be the most effective.
See also this paper by Alan Auerbach and Yuriy Gorodnichenko who find that "large differences in the size of fiscal multipliers in recessions and expansions with fiscal policy being considerably more effective in recessions than in expansions" and that "controlling for predictable components of fiscal shocks tends to increase the size of the multipliers".
Update 1 (25/9/2010)
Analysis show that the 2008 Bush tax cuts failed.