Automatic Fiscal Stabilisers: What they are and what they do

Jan in 't Veld, Martin Larch and Marieke Vandeweyer

No 452, European Economy - Economic Papers 2008 - 2015 from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: The global financial and economic crisis has revived the debate in the academic literature and in policy circles about the size and effectiveness of automatic fiscal stabilisers. Especially in the euro area where monetary policy is centralised and discretionary fiscal policy making is constrained by the EU fiscal rules, knowing the size and the effectiveness of automatic stabilisers is crucial. While automatic stabilisers are a fairly established concept in the fiscal policy literature, there is still no consensus about their actual nature and their effectiveness. This paper shows that differences in opinion mirror a deeper disagreement over how the budget would look like without automatic stabilisers. This issue is addressed by defining two types of counterfactual budgets giving rise to two different interpretations about the nature of automatic stabilisation. Simulations with a structural model confirm that the degree of smoothing is conditional on how the counterfactual budget, i.e. the budget without automatic stabilisers, is defined.

JEL-codes: E37 E62 H30 H6 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2012-04
New Economics Papers: this item is included in nep-eec
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Citations: View citations in EconPapers (15)

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Related works:
Journal Article: Automatic Fiscal Stabilisers: What They Are and What They Do (2013)
Working Paper: Automatic Fiscal Stabilisers: What they are and what they do (2012)
Working Paper: Automatic Fiscal Stabilisers: What they are and what they do (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:euf:ecopap:0452

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