automatic stabilizers

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Automatic Stabilizers

Systems that involuntarily shore up GDP without any action by a government. For example, when a recession occurs, taxes usually decrease because persons and corporations make less. This gives them extra money to spend or invest, which helps GDP remain higher than it would otherwise. Most economists agree that automatic stabilizers work in the short term. They are also called automatic fiscal stabilizers and built-in stabilizers.

automatic (built-in) stabilizers

elements in FISCAL POLICY that serve to automatically reduce the impact of fluctuations in economic activity. A fall in NATIONAL INCOME and output reduces government TAXATION receipts and increases its unemployment and social security payments. Lower taxation receipts and higher payments increase the government's BUDGET DEFICIT and restore some of the lost income (see CIRCULAR FLOW OF NATIONAL INCOME MODEL). See FISCAL DRAG.
References in periodicals archive ?
Also, when a nation's currency weakens, inward remittances rise and, as such, they act as an automatic stabiliser," Basu added.
Also, when a nation's currency weakens, inward remittance rises and as such, it acts as an automatic stabiliser," Kaushik Basu, chief economist, World Bank, said in Washington.
The obvious automatic stabiliser works through the government budget: as the level of economic activity declines, taxation revenue falls and government spending on transfer payments, especially unemployment benefits, rises without the need for any change of policy.
Moscovici said it would act as "an automatic stabiliser on matters that are key to the success of our monetary union".
This would serve as a sort of automatic stabiliser.
Above all, the way the automatic stabilisers operate within the SGP is partly unresolved because it is highly sensitive to assumptions on their nature and on the nature of cycles.
Public finances worsened markedly in the crisis, driven by discretionary stimulus, financial sector support measures and the operation of automatic stabilisers.
We've done that on top of all the automatic stabilisers we have (such as higher social welfare spending) that play a much smaller role in countries from which we're now being criticised.
Global head of research Tim Morgan said: "In addition to the obvious inability of a troubled economy to devalue, the half-baked euro structure has distorted competitiveness and has not delivered the automatic stabilisers which operate within a 'normal' single currency area such as sterling or the dollar.
If growth should weaken, the automatic stabilisers should be allowed to operate to help avoid jeopardising the fragile recovery.
Fiscal consolidation should focus on permanent measures while letting automatic stabilisers operate.
The fiscal framework appropriately provides flexibility to adapt to weaker than expected economic developments, which allows the operation of the automatic stabilisers.

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