Tax Rebate

• A tax rebate results in an actual check (or an electronic deposit) being sent to the taxpayer. A rebate is a reward given by the government's tax authority.
  
  

Tax Credit

• A tax credit (often used as a synonym of "rebate") is not an actual physical check, but the government's permission to reduce one's taxable income. Ultimately, it is still additional income in the taxpayer's pocket, and this is why the two terms are used synonymously.
  
  

Function

• A tax rebate is meant to reward a type of behavior. For example, some states and countries offer a tax rebate for investing in a certain area. New Mexico has a tax rebate for films that are largely made within the state. In some places, investors in low income housing receive a rebate or a credit. Investing in solar or other green energies is also rewarded in many places with tax benefits.
  
  

Benefits

• A tax rebate can promote a specific policy area without directly involving the government. A tax rebate promotes a desirable behavior without creating a new "program," with all its expense. If the government wants investors to assist poor areas in improving their infrastructure, it can rebate investors' taxes by 10 percent, for example.
  
  

Effects

• Tax rebates and credits serve to manipulate a specific market. A tax benefit for investing in a certain area makes such an investment suddenly profitable. In the 1980s, the late Congressman Jack Kemp introduced the concept of "enterprise zones." The idea was to lower taxes in several ways to increase private sector investment in America's cities. It used a mixture of rebates and credits to attract investment to cities.