The Significance of Federal Taxes as Automatic Stabilizers

Alan J. Auerbach · Daniel R. Feenberg

266 citations0/0 files storedThe Journal of Economic Perspectives

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Economic and Fiscal Studies Fiscal Policies and Political Economy Fiscal Policy and Economic Growth

Abstract

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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References

1997Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?1987Financing Constraints and Corporate Investment 1989Consumption and Liquidity Constraints: An Empirical Investigation 1989Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence 1993An Introduction to the TAXSIM Model 1999The Response of Household Consumption to Income Tax Refunds 1999The Reaction of Household Consumption to Predictable Changes in Social Security Taxes 1999Chapter 8 Micro data and general equilibrium models

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