The Significance of Federal Taxes as Automatic Stabilizers

33 Pages Posted: 21 May 2000 Last revised: 10 Apr 2001

See all articles by Alan J. Auerbach

Alan J. Auerbach

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Daniel R. Feenberg

National Bureau of Economic Research (NBER)

Date Written: April 2000

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.

Suggested Citation

Auerbach, Alan Jeffrey and Feenberg, Daniel R., The Significance of Federal Taxes as Automatic Stabilizers (April 2000). NBER Working Paper No. w7662. Available at SSRN: https://ssrn.com/abstract=228136

Alan Jeffrey Auerbach

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
510-643-0711 (Phone)
510-643-0413 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Munich, DE-81679
Germany

Daniel R. Feenberg (Contact Author)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
617-588-0343 (Phone)

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