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  4. Summer 2000
  5. The Significance of Federal Taxes as Automatic Stabilizers

Journal of Economic Perspectives

ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)

The Significance of Federal Taxes as Automatic Stabilizers

  • Alan J. Auerbach
  • Daniel R. Feenberg
Journal of Economic Perspectives
vol. 14, no. 3, Summer 2000
(pp. 37–56)
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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.

Citation

Auerbach, Alan, J., and Daniel R. Feenberg. 2000. "The Significance of Federal Taxes as Automatic Stabilizers." Journal of Economic Perspectives 14 (3): 37–56. DOI: 10.1257/jep.14.3.37

JEL Classification

  • E62 Fiscal Policy