Fiscal policy over the cycle: the role of automatic stabilizers

Alexander Klemm

Applied Economics Letters, 2015, vol. 22, issue 16, 1298-1302

Abstract: This article suggests a new adjusted fiscal balance to be used in studies of the cyclicality of fiscal policy. The suggested approach takes into account both discretionary policy action and those automatic stabilizers that are a systematic component of the tax and benefit system, but excludes additional revenues that are due to applying an unchanged average tax rate to nominal GDP in excess of potential. This article argues that this has advantages over the previous approaches relying either on the overall or the cyclically adjusted (or structural) primary balance.

Date: 2015
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DOI: 10.1080/13504851.2015.1026575

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