The role of automatic stabilizers in the U.S. business cycle
Alisdair McKay () and
No 2013-007, Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics
Most countries have automatic rules in their tax-and-transfer systems that are partly intended to stabilize economic fluctuations. This paper measures how eâ†µective they are. We put forward a model that merges the standard incomplete-markets model of consumption and inequality with the new Keynesian model of nominal rigidities and business cycles, and that includes most of the main potential stabilizers in the U.S. data, as well as the theoretical channels by which they may work. We find that the conventional argument that stabilizing disposable income will stabilize aggregate demand plays a negligible role on the eâ†µectiveness of the stabilizers, whereas tax-and- transfer programs that aâ†µect inequality and social insurance can have a large eâ†µect on aggregate volatility. However, as currently designed, the set of stabilizers in place in the United States has barely had any eâ†µect on volatility. According to our model, expanding safety-net programs, like food stamps, has the largest potential to enhance the eâ†µectiveness of the stabilizers.
Keywords: Countercyclical fiscal policy; Heterogeneous agents; Fiscal multipliers. (search for similar items in EconPapers)
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http://www.bu.edu/econ/files/2014/05/McKay-The-rol ... izers-April-2013.pdf First version, 2013 (application/pdf)
Journal Article: The Role of Automatic Stabilizers in the U.S. Business Cycle (2016)
Working Paper: The role of automatic stabilizers in the U.S.business cycle (2016)
Working Paper: The role of automatic stabilizers in the U.S. business cycle (2013)
Working Paper: The Role of Automatic Stabilizers in the U.S. Business Cycle (2013)
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