Quantifying the Role Automatic Stabilisers Play in New Zealand Using a Macro-Simulation Approach

Andrew Binning

Treasury Working Paper Series from New Zealand Treasury

Abstract: Automatic stabilisers are fiscal policy’s first line of defence in the face of adverse economic shocks. Automatic stabilisers capture fiscal policy’s automatic countercyclical response to the state of the business cycle, and are determined by factors like the progressivity of the tax system, the size of government and the amount of benefit spending that is dependent on recipients’ economic circumstances. Built into the system, they do not require legislative action each time they are implemented, meaning they can be deployed relatively quickly. In this paper I investigate the role automatic stabilisers play in stabilising the New Zealand economy across the business cycle. I benchmark current automatic stabilisation policy against different definitions of neutral fiscal policy to determine their contribution to stabilising the economy. I find the standard deviation of GDP could be up to 29% higher in a world without automatic stabilisers. Plausible gains from strengthening automatic stabilisers from current settings are likely to be much smaller. Automatic stabilisers play a larger role when monetary policy is constrained by the lower bo

Keywords: automatic fiscal stabilisers; macro-simulation; counter-factual policy simulation (search for similar items in EconPapers)
JEL-codes: E37 E62 H30 H6 (search for similar items in EconPapers)
Pages: 65 pages
Date: 2024-04
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.treasury.govt.nz/sites/default/files/2024-04/twp24-02.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nzt:nztwps:24/02

Access Statistics for this paper

More papers in Treasury Working Paper Series from New Zealand Treasury New Zealand Treasury, PO Box 3724, Wellington 6140, New Zealand. Contact information at EDIRC.
Bibliographic data for series maintained by CSS I&T Web & Publishing, The Treasury ().