Automatic Stabilizers and Economic Crisis: US vs. Europe

Mathias Dolls, Clemens Fuest and Andreas Peichl

No 4310, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper analyzes the effectiveness of the tax and transfer systems in the European Union and the US to act as an automatic stabilizer in the current economic crisis. We find that automatic stabilizers absorb 38 per cent of a proportional income shock in the EU, compared to 32 per cent in the US. In the case of an unemployment shock 48 per cent of the shock are absorbed in the EU, compared to 34 per cent in the US. This cushioning of disposable income leads to a demand stabilization of 23 to 32 per cent in the EU and 19 per cent in the US. There is large heterogeneity within the EU. Automatic stabilizers in Eastern and Southern Europe are much lower than in Central and Northern European countries. We also investigate whether countries with weak automatic stabilizers have enacted larger fiscal stimulus programs. We find no evidence supporting this view.

Keywords: automatic stabilization; fiscal stimulus; economic crisis; liquidity constraints (search for similar items in EconPapers)
JEL-codes: E32 E63 H2 H31 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2009-07
New Economics Papers: this item is included in nep-eec and nep-mac
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Citations: View citations in EconPapers (20)

Published - revised version published in: Journal of Public Economics , 2012, 96 (3-4), 279-294

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Related works:
Journal Article: Automatic stabilizers and economic crisis: US vs. Europe (2012)
Working Paper: Automatic stabilisers and economic crisis: US vs Europe (2010)
Working Paper: Automatic Stabilizers and Economic Crisis: US vs. Europe (2010)
Working Paper: Automatic Stabilizers and Economic Crisis: US vs. Europe (2009)
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