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 ?
With the economic and financial crisis, the EU has begun taking an interest in a European unemployment insurance scheme to serve as an automatic stabiliser in the eurozone, since the governments that share the same currency have lost the capacity to use budget stabilisers to deal with a recession.
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.
At the plenary session, the Commission will be asked to state its intentions on a possible green paper on the feasibility and appropriateness of an automatic stabiliser for EMU.
During the round table, on 11 October, he further developed this point of view, supporting a European unemployment benefit scheme, "which would act as an automatic stabiliser by temporarily reducing the social public spending of the countries most affected, without introducing long-term transfer flows.
The higher the average tax rate on income from a cyclically sensitive source, the larger will be the automatic stabiliser.
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.
In a genuine currency union, wealth transfers and automatic stabilisers mean that such discrepancies do not pose a problem.
The Finance Ministry said that while it would continue to allow automatic stabilisers - mostly benefit payments and a lower tax take - to support the economy, yesterday's figures showed there was no scope for deficit-financed spending.
If growth should weaken, the automatic stabilisers should be allowed to operate to help avoid jeopardising the fragile recovery.
The OECD's recommendation for strengthening so-called automatic stabilisers could get a lukewarm reception from lawmakers when pressure is on to slash ballooning government debt and politicians cannot agree where to make the cuts.

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