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The Significance of Federal Taxes as Automatic Stabilizers

  • Alan J. Auerbach
  • Daniel Feenberg

Using the TAXSIM model for the period 1962-95, we consider the federal tax system's impact as an automatic stabilizer. Despite the many changes in the tax system, there has been relatively little change in its role as an automatic stabilizer. We estimate that individual federal taxes offset perhaps as much as 8 percent of initial shocks to GDP. We also suggest that the progressive income tax may help to stabilize output via its effect on the supply of labor, an additional effect that may even be of similar magnitude to the more traditional path of stabilization through aggregate demand.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7662.

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Date of creation: Apr 2000
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Publication status: Published as "The Significance of Federal Taxes as Automatic Satbilizers," The Journal of Economic Perspectives, Volume 14, Number 3 (Summer 2000): Pages 37-56.
Handle: RePEc:nbr:nberwo:7662
Note: EFG PE
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