automatic stabilizers

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 ?
Stronger automatic stabilizers can be thought of as decreasing the coefficient c in the AD relationship.
As a consequence, the automatic stabilizers that are in place can function as intended.
A prudent 2002 budget including automatic stabilizers to control spending in the face of revenue shortfalls would also be seen positively.
7 percent-of-GDP increase in the budget deficit was the result of the economic downturn, as the automatic stabilizers added 2.
Another strong reason to improve cyclically adjusted net lending as the economy approaches a normal and an expansionary phase is to provide a greater margin both for so-called automatic stabilizers and for active measures to counter the next economic downturn.
The Stability and Growth Pact was designed so that countries would be able to let automatic stabilizers work fully.
Among other things, the focus on the reduction in the deficit brought about by legislative action, rather than the level of the deficit per se, eliminates the need for policy adjustments to offset the effects of changes in economic conditions and thus allows the automatic stabilizers to function as intended.
Fortunately, this year's budget has included automatic stabilizers and the government has cut expenditures consistent with these provisions, thereby buttressing investor confidence.
Keynesian economics worked: if not for stimulus measures and automatic stabilizers, the recession would have been far deeper and longer, and unemployment much higher.
Finding a way through this thicket of adhering to medium-term fiscal discipline while allowing not only the automatic stabilizers but maybe even some deliberate counter-cyclical short-term fiscal policy to operate is very difficult.
Moreover, the usual automatic stabilizers of unemployment benefits and reduced income tax collections will do nothing to offset this fall in demand, because it is not caused by lower earnings or increased unemployment.
We tend to think of automatic stabilizers in textbook Keynesian terms, but a new automatic stabilizer for the United States is the interaction between long-term interest rates and mortgage refinancing.

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