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Theoretical Considerations Regarding The Automatic Fiscal Stabilizers Operating Mechanism

Author

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  • Gondor Mihaela

    (Petru Maior University of Târgu Mures, Romania, Faculty of Economics, Law and Administrative Sciences)

Abstract

This paper examines the role of Automatic Fiscal Stabilizers (AFS) for stabilizing the cyclical fluctuations of macroeconomic output as an alternative to discretionary fiscal policy, admitting its huge potential of being an anti crisis solution. The objectives of the study are the identification of the general features of the concept of automatic fiscal stabilizers and the logical assessment of them from economic perspectives. Based on the literature in the field, this paper points out the disadvantages of fiscal discretionary policy and argue the need of using Automatic Fiscal Stabilizers in order to provide a faster decision making process, shielded from political interference, and reduced uncertainty for households and business environment. The paper conclude about the need of using fiscal policy for smoothing the economic cycle, but in a way which includes among its features transparency, responsibility and clear operating mechanisms. Based on the research results the present paper assumes that pro-cyclicality reduces de effectiveness of the Automatic Fiscal Stabilizer and as a result concludes that it is very important to avoid the pro-cyclicality in fiscal rule design. Moreover, by committing in advance to specific fiscal policy action contingent on economic developments, uncertainty about the fiscal policy framework during a recession should be reduced. Being based on logical analysis and not focused on empirical, contextualized one, the paper presents some features of AFS operating mechanism and also identifies and systematizes the factors which provide its importance and national individuality. Reaching common understanding on the Automatic Fiscal Stabilizer concept as a institutional device for smoothing the gap of the economic cycles across different countries, particularly for the European Union Member States, will facilitate efforts to coordinate fiscal policy responses during a crisis, especially in the context of the fiscal harmonization. The main result of this study is the developing of the definition of Automatic Fiscal Stabilizer.

Suggested Citation

  • Gondor Mihaela, 2012. "Theoretical Considerations Regarding The Automatic Fiscal Stabilizers Operating Mechanism," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 713-719, July.
    • Handle: RePEc:ora:journl:v:1:y:2012:i:1:p:713-719
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    References listed on IDEAS

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    More about this item

    Keywords

    Automatic Fiscal Stabilizers; Discretionary Fiscal Policy; Non-discretionary Fiscal Policy; Economic Cycle; Economic Crisis;
    All these keywords.

    JEL classification:

    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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