Social Protection as an Automatic Stabilizer

Mathias Dolls, Clemens Fuest and Andreas Peichl

No 18, IZA Policy Papers from Institute of Labor Economics (IZA)

Abstract: This paper analyzes the effectiveness of social protection systems in Europe and the US to provide (income) insurance against macro level shocks in terms of automatic stabilizers. We find that automatic stabilizers absorb 38% of a proportional income shock and 47% of an idiosyncratic unemployment shock in Europe, compared to 32% and 34% in the US. There is large heterogeneity within Europe with stabilization being much lower in Eastern and Southern than in Central and Northern Europe. Our results suggest that social transfers, in particular the rather generous systems of unemployment insurance in Europe, play a key role for the stabilization of disposable incomes and explain a large part of the difference in automatic stabilizers between Europe and the US.

Keywords: taxes and benefits; economic crisis; automatic stabilization (search for similar items in EconPapers)
JEL-codes: E32 E63 H2 H31 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2010-09
New Economics Papers: this item is included in nep-eec and nep-mac
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Citations: View citations in EconPapers (3)

Published - revised version published as 'Automatic stabilization and discretionary fiscal policy in the financial crisis' in: IZA Journal of Labor Policy, 2012, 1:4

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