IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Automatic Stabilizers and Economic Crisis: US vs. Europe

  • Mathias Dolls

    ()

  • Clemens Fuest

    ()

  • Andreas Peichl

    ()

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cgs.uni-koeln.de/fileadmin/wiso_fak/cgs/pdf/working_paper/CGS_Dolls_Peichl_Fuest_Automatic_Stabilizers.pdf
Download Restriction: no

Paper provided by Cologne Graduate School in Management, Economics and Social Sciences in its series Cologne Graduate School Working Paper Series with number 01-02.

as
in new window

Length:
Date of creation: 16 Jul 2010
Date of revision:
Handle: RePEc:cgr:cgsser:01-02
Contact details of provider: Postal:
0221 / 470 5607

Phone: 0221 / 470 5607
Fax: 0221 / 470 5179
Web page: http://www.cgs.uni-koeln.de/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Matthew D. Shapiro & Joel Slemrod, 2001. "Consumer Response to Tax Rebates," NBER Working Papers 8672, National Bureau of Economic Research, Inc.
  2. Tullio Jappelli & Jörn-Steffen Pischke & Nicholas S. Souleles, 1998. "Testing For Liquidity Constraints In Euler Equations With Complementary Data Sources," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 251-262, May.
  3. Herwig Immervoll & Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2005. "Welfare Reform in European Countries: A Microsimulation Analysis," OECD Social, Employment and Migration Working Papers 28, OECD Publishing.
  4. Herwig Immervoll & Horacio Levy & Christine Lietz & Daniela Mantovani & Holly Sutherland, 2006. "The sensitivity of poverty rates to macro-level changes in the European Union," Cambridge Journal of Economics, Oxford University Press, vol. 30(2), pages 181-199, March.
  5. Reinhart, Carmen M. & Rogoff, Kenneth, 2009. "The Aftermath of Financial Crises," CEPR Discussion Papers 7209, C.E.P.R. Discussion Papers.
  6. Xavier Sala-i-Martin & Jeffrey Sachs, 1991. "Fiscal Federalism and Optimum Currency Areas: Evidence for Europe From the United States," NBER Working Papers 3855, National Bureau of Economic Research, Inc.
  7. Jordi Galí & J. David López-Salido & Javier Vallés, 2007. "Understanding the Effects of Government Spending on Consumption," Journal of the European Economic Association, MIT Press, vol. 5(1), pages 227-270, 03.
  8. Piketty, Thomas & Saez, Emmanuel, 2006. "How Progessive is the US Federal Tax System? An Historical and International Perspective," CEPR Discussion Papers 5778, C.E.P.R. Discussion Papers.
  9. Thomas Piketty & Emmanuel Saez, 2006. "How Progressive is the U.S. Federal Tax System? A Historical and International Perspective," NBER Working Papers 12404, National Bureau of Economic Research, Inc.
  10. Alan J. Auerbach, 2009. "Implementing the New Fiscal Policy Activism," NBER Working Papers 14725, National Bureau of Economic Research, Inc.
  11. François Bourguignon & Amadéo Spadaro, 2005. "Microsimulation as a tool for evaluating redistribution policies," PSE Working Papers halshs-00590863, HAL.
  12. Matthew D. Shapiro & Joel Slemrod, 1993. "Consumer Response to the Timing of Income: Evidence from a Change in Tax Withholding," NBER Working Papers 4344, National Bureau of Economic Research, Inc.
  13. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 1039-1073.
  14. Edward C. Prescott, 2004. "Why do Americans Work so Much More than Europeans?," NBER Working Papers 10316, National Bureau of Economic Research, Inc.
  15. Perotti, Roberto, 2002. "Estimating the effects of fiscal policy in OECD countries," Working Paper Series 0168, European Central Bank.
  16. DiNardo, John & Fortin, Nicole M & Lemieux, Thomas, 1996. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Econometrica, Econometric Society, vol. 64(5), pages 1001-44, September.
  17. Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October.
  18. Alberto Alesina & Edward L. Glaeser & Bruce Sacerdote, 2005. "Work and Leisure in the U.S. and Europe: Why So Different?," NBER Working Papers 11278, National Bureau of Economic Research, Inc.
  19. repec:fth:harver:1435 is not listed on IDEAS
  20. Julia Darby & Jacques Melitz, 2008. "Social spending and automatic stabilizers in the OECD," Economic Policy, CEPR;CES;MSH, vol. 23, pages 715-756, October.
  21. Thomas J. Kniesner & James P. Ziliak, 2000. "Tax Reform and Automatic Stabilization," Econometric Society World Congress 2000 Contributed Papers 0788, Econometric Society.
  22. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income and Interest Rates: Reinterpreting the Time Series Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246 National Bureau of Economic Research, Inc.
  23. Tullio Jappelli & Luigi Pistaferri, 2010. "The Consumption Response to Income Changes," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 479-506, 09.
  24. Aaberge, Rolf, et al, 2000. " Unemployment Shocks and Income Distribution: How Did the Nordic Countries Fare during Their Crises?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(1), pages 77-99, March.
  25. Stephen Zeldes, . "Consumption and Liquidity Constraints: An Empirical Investigation," Rodney L. White Center for Financial Research Working Papers 24-85, Wharton School Rodney L. White Center for Financial Research.
  26. Alan J. Auerbach & Daniel R. Feenberg, 2000. "The Significance of Federal Taxes as Automatic Stabilizers," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 37-56, Summer.
  27. François Marical & Marco Mira d'Ercole & Maria Vaalavuo & Gerlinde Verbist, 2006. "Publicly-provided Services and the Distribution of Resources," OECD Social, Employment and Migration Working Papers 45, OECD Publishing.
  28. Runkle, David E., 1991. "Liquidity constraints and the permanent-income hypothesis : Evidence from panel data," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 73-98, February.
  29. Auerbach, Alan J & Hassett, Kevin A, 2002. "Fiscal Policy and Uncertainty," International Finance, Wiley Blackwell, vol. 5(2), pages 229-49, Summer.
  30. Matthew D. Shapiro & Joel B. Slemrod, 2009. "Did the 2008 Tax Rebates Stimulate Spending?," NBER Working Papers 14753, National Bureau of Economic Research, Inc.
  31. Fatás, Antonio & Mihov, Ilian, 1999. "Government Size and Automatic Stabilizers: International and Intranational Evidence," CEPR Discussion Papers 2259, C.E.P.R. Discussion Papers.
  32. Devereux, Michael P. & Fuest, Clemens, 2009. "Is the Corporation Tax an Effective Automatic Stabilizer?," National Tax Journal, National Tax Association, vol. 62(3), pages 429-37, September.
  33. Andres, Javier & Domenech, Rafael & Fatas, Antonio, 2008. "The stabilizing role of government size," Journal of Economic Dynamics and Control, Elsevier, vol. 32(2), pages 571-593, February.
  34. Marco Buti & Paul van den Noord, 2004. "Fiscal policy in EMU: Rules, discretion and political incentives," European Economy - Economic Papers 206, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  35. Thiess Buettner & Clemens Fuest, 2009. "The Role of the Corporate Income Tax as an Automatic Stabilizer," CESifo Working Paper Series 2798, CESifo Group Munich.
  36. Bell, David N.F. & Blanchflower, David G., 2009. "What Should Be Done about Rising Unemployment in the UK?," IZA Discussion Papers 4040, Institute for the Study of Labor (IZA).
  37. Thomas J. Kniesner & James P. Z‎iliak, 2001. "Explicit Versus Implicit Income Insurance," Center for Policy Research Working Papers 38, Center for Policy Research, Maxwell School, Syracuse University.
  38. Jonathan Eaton & Harvey S. Rosen, 1980. "Optimal Redistributive Taxation and Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 95(2), pages 357-364.
  39. Mabbett, Deborah, 2004. "Fiscal stabilisers in Europe: the macroeconomic impact of tax and benefit systems," EUROMOD Working Papers EM7/04, EUROMOD at the Institute for Social and Economic Research.
  40. Irwin Garfinkel & Lee Rainwater & Timothy M. Smeeding, 2006. "A re-examination of welfare states and inequality in rich nations: How in-kind transfers and indirect taxes change the story," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 25(4), pages 897-919.
  41. Alari Paulus & Holly Sutherland & Panos Tsakloglou, 2010. "The distributional impact of in-kind public benefits in European countries," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 29(2), pages 243-266.
  42. David S. Johnson & Jonathan A. Parker & Nicholas S. Souleles, 2004. "Household Expenditure and the Income Tax Rebates of 2001," NBER Working Papers 10784, National Bureau of Economic Research, Inc.
  43. Nathalie Girouard & Christophe André, 2005. "Measuring Cyclically-adjusted Budget Balances for OECD Countries," OECD Economics Department Working Papers 434, OECD Publishing.
  44. Auerbach, Alan J. & Hassett, Kevin, 2007. "Optimal long-run fiscal policy: Constraints, preferences and the resolution of uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 31(5), pages 1451-1472, May.
  45. Sutherland, Holly, 2001. "EUROMOD: an integrated European benefit-tax model: final report," EUROMOD Working Papers EM9/01, EUROMOD at the Institute for Social and Economic Research.
  46. Melitz, Jacques & Zumer, Frederic, 2002. "Regional redistribution and stabilization by the center in Canada, France, the UK and the US:: A reassessment and new tests," Journal of Public Economics, Elsevier, vol. 86(2), pages 263-286, November.
  47. Roberto Perotti, 2002. "Estimating the effects of fiscal policy in OECD countries," Economics Working Papers 015, European Network of Economic Policy Research Institutes.
  48. Bayoumi, Tamim & Masson, Paul R., 1995. "Fiscal flows in the United States and Canada: Lessons for monetary union in Europe," European Economic Review, Elsevier, vol. 39(2), pages 253-274, February.
  49. Joseph A. Pechman, 1973. "Responsiveness of the Federal Individual Income Tax to Changes in Income," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(2), pages 385-428.
  50. Nicolas Hérault, 2009. "Sequential Linking of Computable General Equilibrium and Microsimulation Models," Melbourne Institute Working Paper Series wp2009n02, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  51. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
  52. Jonathan A. Parker, 1999. "The Reaction of Household Consumption to Predictable Changes in Social Security Taxes," American Economic Review, American Economic Association, vol. 89(4), pages 959-973, September.
  53. European Commission, 2010. "Taxation trends in the European Union: 2010 edition," Taxation trends 2010, Directorate General Taxation and Customs Union, European Commission.
  54. Kleven, Henrik & Kreiner, Claus Thustrup, 2006. "The Marginal Cost of Public Funds: Hours of Work versus Labor Force Participation," CEPR Discussion Papers 5594, C.E.P.R. Discussion Papers.
  55. Paul van den Noord, 2000. "The Size and Role of Automatic Fiscal Stabilizers in the 1990s and Beyond," OECD Economics Department Working Papers 230, OECD Publishing.
  56. Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc.
  57. Emmanuel Saez, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," Review of Economic Studies, Oxford University Press, vol. 68(1), pages 205-229.
  58. repec:fth:pennfi:69 is not listed on IDEAS
  59. Nicholas S. Souleles, 1999. "The Response of Household Consumption to Income Tax Refunds," American Economic Review, American Economic Association, vol. 89(4), pages 947-958, September.
  60. Gali, Jordi, 1994. "Government size and macroeconomic stability," European Economic Review, Elsevier, vol. 38(1), pages 117-132, January.
  61. European Commission, 2013. "Taxation trends in the European Union: 2013 edition," Taxation trends 2013, Directorate General Taxation and Customs Union, European Commission.
  62. European Commission, 2009. "Taxation trends in the European Union: 2009 edition," Taxation trends 2009, Directorate General Taxation and Customs Union, European Commission.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cgr:cgsser:01-02. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David Kusterer)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.