Open AccessThe Significance of Federal Taxes as Automatic Stabilizers
Author(s) -
Alan J. Auerbach,
Daniel Feenberg
Publication year - 2000
Publication title -
the journal of economic perspectives/the journal of economic perspectives
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 9.614
H-Index - 196
eISSN - 1944-7965
pISSN - 0895-3309
DOI - 10.1257/jep.14.3.37
Subject(s) - economics , offset (computer science) , aggregate demand , monetary economics , microeconomics , monetary policy , computer science , programming language
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.