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

  • Dolls, Mathias

    ()

    (ZEW Mannheim)

  • Fuest, Clemens

    ()

    (ZEW Mannheim)

  • Peichl, Andreas

    ()

    (ZEW Mannheim)

This paper analyzes the effectiveness of the tax and transfer systems in the European Union and the US to act as an automatic stabilizer in the current economic crisis. We find that automatic stabilizers absorb 38 per cent of a proportional income shock in the EU, compared to 32 per cent in the US. In the case of an unemployment shock 48 per cent of the shock are absorbed in the EU, compared to 34 per cent in the US. This cushioning of disposable income leads to a demand stabilization of 23 to 32 per cent in the EU and 19 per cent in the US. There is large heterogeneity within the EU. Automatic stabilizers in Eastern and Southern Europe are much lower than in Central and Northern European countries. We also investigate whether countries with weak automatic stabilizers have enacted larger fiscal stimulus programs. We find no evidence supporting this view.

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://ftp.iza.org/dp4310.pdf
Download Restriction: no

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4310.

as
in new window

Length: 34 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:iza:izadps:dp4310
Contact details of provider: Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org

Order Information: Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Email:


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. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," American Economic Review, American Economic Association, vol. 99(2), pages 466-72, May.
  2. Javier Andrés & Rafael Doménech & Antonio Fatás, 2007. "The stabilizing role of government size," Banco de Espa�a Working Papers 0710, Banco de Espa�a.
  3. Saez, Emmanuel, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," Review of Economic Studies, Wiley Blackwell, vol. 68(1), pages 205-29, January.
  4. John DiNardo & Nicole M. Fortin & Thomas Lemieux, 1995. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," NBER Working Papers 5093, National Bureau of Economic Research, Inc.
  5. Auerbach, Alan J & Hassett, Kevin A, 2002. "Fiscal Policy and Uncertainty," International Finance, Wiley Blackwell, vol. 5(2), pages 229-49, Summer.
  6. Galí, Jordi & López-Salido, David & Vallés, Javier, 2004. "Understanding the effects of government spending on consumption," Working Paper Series 0339, European Central Bank.
  7. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, MIT Press, vol. 117(3), pages 1039-1073, August.
  8. Shapiro, Matthew D & Slemrod, Joel, 1995. "Consumer Response to the Timing of Income: Evidence from a Change in Tax Withholding," American Economic Review, American Economic Association, vol. 85(1), pages 274-83, March.
  9. Julia Darby & Jacques Melitz, 2008. "Social spending and automatic stabilizers in the OECD," Economic Policy, CEPR;CES;MSH, vol. 23, pages 715-756, October.
  10. Nicholas S. Souleles & Jonathan A. Parker & David S. Johnson, 2006. "Household Expenditure and the Income Tax Rebates of 2001," American Economic Review, American Economic Association, vol. 96(5), pages 1589-1610, December.
  11. Thiess Buettner & Clemens Fuest, 2010. "The role of the corporate income tax as an automatic stabilizer," International Tax and Public Finance, Springer, vol. 17(6), pages 686-698, December.
  12. Dani Rodrik, 1996. "Why Do More Open Economies Have Bigger Governments?," NBER Working Papers 5537, National Bureau of Economic Research, Inc.
  13. Bayoumi, Tamim & Masson, Paul R, 1994. "Fiscal Flows in the United States and Canada: Lessons for Monetary Union in Europe," CEPR Discussion Papers 1057, C.E.P.R. Discussion Papers.
  14. European Commission, 2010. "Taxation trends in the European Union: 2010 edition," Taxation trends 2010, Directorate General Taxation and Customs Union, European Commission.
  15. Matthew D. Shapiro & Joel B. Slemrod, 2009. "Did the 2008 Tax Rebates Stimulate Spending?," NBER Working Papers 14753, National Bureau of Economic Research, Inc.
  16. 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.
  17. Alberto F. Alesina & Edward L. Glaeser & Bruce Sacerdote, 2006. "Work and Leisure in the U.S. and Europe: Why So Different?," NBER Chapters, in: NBER Macroeconomics Annual 2005, Volume 20, pages 1-100 National Bureau of Economic Research, Inc.
  18. Sachs, Jeffrey & Sala-i-Martin, Xavier, 1992. "Fiscal Federalism and Optimum Currency Areas: Evidence for Europe from the United States," CEPR Discussion Papers 632, C.E.P.R. Discussion Papers.
  19. Edward C. Prescott, 2004. "Why do Americans Work so Much More than Europeans?," NBER Working Papers 10316, National Bureau of Economic Research, Inc.
  20. 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).
  21. Perotti, Roberto, 2002. "Estimating the effects of fiscal policy in OECD countries," Working Paper Series 0168, European Central Bank.
  22. Fatas, Antonio & Mihov, Ilian, 2001. "Government size and automatic stabilizers: international and intranational evidence," Journal of International Economics, Elsevier, vol. 55(1), pages 3-28, October.
  23. Thomas J. Kniesner & James P. Ziliak, 2000. "Tax Reform and Automatic Stabilization," Center for Policy Research Working Papers 21, Center for Policy Research, Maxwell School, Syracuse University.
  24. Immervoll, Herwig & Kleven, Henrik Jacobsen & Kreiner, Claus Thustrup & Saez, Emmanuel, 2005. "Welfare Reform in European Countries: A Microsimulation Analysis," IZA Discussion Papers 1810, Institute for the Study of Labor (IZA).
  25. Matthew D. Shapiro & Joel Slemrod, 2003. "Consumer Response to Tax Rebates," American Economic Review, American Economic Association, vol. 93(1), pages 381-396, March.
  26. 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.
  27. 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.
  28. 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.
  29. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-46, April.
  30. 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.
  31. 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.
  32. 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.
  33. 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.
  34. 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.
  35. European Commission, 2009. "Taxation trends in the European Union: 2009 edition," Taxation trends 2009, Directorate General Taxation and Customs Union, European Commission.
  36. 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.
  37. François Bourguignon & Amedeo Spadaro, 2006. "Microsimulation as a Tool for Evaluating Redistribution Policies," Working Papers 20, ECINEQ, Society for the Study of Economic Inequality.
  38. 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.
  39. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization Of The Dynamic Effects Of Changes In Government Spending And Taxes On Output," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1329-1368, November.
  40. repec:fth:pennfi:69 is not listed on IDEAS
  41. Kniesner, Thomas J & Ziliak, James P, 2002. " Explicit versus Implicit Income Insurance," Journal of Risk and Uncertainty, Springer, vol. 25(1), pages 5-20, July.
  42. 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.
  43. Tullio Jappelli & Luigi Pistaferri, 2009. "The Consumption Response to Income Changes," CSEF Working Papers 237, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  44. Roberto Perotti, 2002. "Estimating the effects of fiscal policy in OECD countries," Economics Working Papers 015, European Network of Economic Policy Research Institutes.
  45. 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.
  46. 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.
  47. repec:fth:harver:1435 is not listed on IDEAS
  48. Alan J. Auerbach, 2009. "Implementing the New Fiscal Policy Activism," American Economic Review, American Economic Association, vol. 99(2), pages 543-49, May.
  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. 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.
  51. Eaton, Jonathan & Rosen, Harvey S, 1980. "Optimal Redistributive Taxation and Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 95(2), pages 357-64, September.
  52. 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.
  53. 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.
  54. 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.
  55. 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.
  56. European Commission, 2013. "Taxation trends in the European Union: 2013 edition," Taxation trends 2013, Directorate General Taxation and Customs Union, European Commission.
  57. 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.
  58. 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.
  59. Gali, Jordi, 1994. "Government size and macroeconomic stability," European Economic Review, Elsevier, vol. 38(1), pages 117-132, January.
  60. 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.
  61. Nathalie Girouard & Christophe André, 2005. "Measuring Cyclically-adjusted Budget Balances for OECD Countries," OECD Economics Department Working Papers 434, OECD Publishing.
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:iza:izadps:dp4310. 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: (Mark Fallak)

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.