Automatic Fiscal Stabilisers: What They Are and What They Do
AbstractThe global financial and economic crisis has revived the debate in the academic literature and in policy circles about the size and effectiveness of automatic fiscal stabilisers. Especially in the euro area where monetary policy is centralised and discretionary fiscal policy making is constrained by the EU fiscal rules, knowing the size and the effectiveness of automatic stabilisers is crucial. While automatic stabilisers are a fairly established concept in the fiscal policy literature, there is still no consensus about their actual nature and their effectiveness. This paper shows that differences in opinion mirror a deeper disagreement over how the budget would look like without automatic stabilisers. This issue is addressed by defining two types of counterfactual budgets giving rise to two different interpretations about the nature of automatic stabilisation. Simulations with a structural model confirm that the degree of smoothing is conditional on how the counterfactual budget, i.e. the budget without automatic stabilisers, is defined. Copyright European Union 2013
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Bibliographic InfoArticle provided by Springer in its journal Open Economies Review.
Volume (Year): 24 (2013)
Issue (Month): 1 (February)
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Web page: http://www.springerlink.com/link.asp?id=100323
Automatic stabilisers; Budget balance; Output smoothing; Model simulation; H6; H30; E37; E62;
Other versions of this item:
- Jan in't Veld & Martin Larch & Marieke Vandeweyer, 2012. "Automatic Fiscal Stabilisers: What they are and what they do," Vives discussion paper series 29, Katholieke Universiteit Leuven, Faculteit Economie en Bedrijfswetenschappen, Vives.
- Jan in 't Veld & Martin Larch & Marieke Vandeweyer, 2012. "Automatic Fiscal Stabilisers: What they are and what they do," European Economy - Economic Papers 452, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
- H6 - Public Economics - - National Budget, Deficit, and Debt
- H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
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