Automatic stabilizer

Automatic stabilizer describes a fiscal mechanism, the counter varies the extent of state revenue or expenditure to the business cycle and thus the overall economy stabilized in the short term. With this instrument, the characteristic of a situation-specific economic policy delays resulting from analysis and decision-making processes of government and administration, avoided, and the time can be a medium to long -term effects bridged up to act on the basis of policy decisions.

• 3.1 Unemployment Insurance ( Switzerland )
• 3.2 Progressive Income Tax

Effect

Requirements

The stabilizing apparatus is based on three conditions:

The effects of this economic instrument can both be out within an economic cycle changing tax revenue or social security contributions, as well as cyclically varying government spending, especially social services.

Stationary economy

As an example here is to call the unemployment insurance system, which is able to dampen the economy of the revenue side and on the output side:

During the economic boom and unemployment is falling and it will reduce the amount of support payments to the unemployed. The contributions to the Federal Institute for Occupational take, hence the purchasing power of income is reduced. Overall, a dampening effect on the booming economy. In times of stagnation or downturn of the unemployment insurance take from and payments to the unemployed to, but effective demand goes back less than would be the case in the absence of such an insurance system.

A major factor in the scope of automatic flexibility in tax revenues and the associated stabilization effect is the revenue elasticity ( Elasticity ( economics) ) of the control system. The larger this is, the more significant are the variations of tax revenue while the economy. Furthermore, the revenue elasticity of the tax system of the elasticity of individual taxes (direct and indirect taxes ) and their weight depends within the system. A high value of the revenue elasticity is for the stabilizing effect of advantage: the higher the revenue elasticity, the higher are the costs incurred during the boom in tax revenues or as part of the downturn, the loss of tax revenue. Disproportionate tax revenues in the boom 's income and thus depriving restrain growth, disproportionate tax revenue during the recession provide relief for citizens and result in a higher, affluent income. The automatic attenuation of the economic cycle requires:

1 In the context of stagnation or downturn of the tax revenues are not offset by a reduction in government spending, as well as not more government money is spent during the boom, although tax revenue could make this possible. A balancing the state budget would lead to an automatic destabilizer.

2 Tax revenues runs approximately synchronously with the course of an economic activity. Delayed emergence of development would reduce the automatic stabilizing effect or even transform into a destabilizer.

Growing economy

For the consideration in the context of a growing economy you have to include some special points:

1 A high revenue elasticity due to a rapidly growing tax revenues, so that the tax rate increases ( "fiscal dividend" of a progressive tax system ). If the revenue elasticity of individual taxes is particularly high, the percentage increases in the total tax revenue, while the share of other indirect taxes decreases.

2 The effects of a high revenue elasticity depend largely on the development of government spending.

If the disproportionately high tax revenue not offset by corresponding expenditure, ie corresponds to the growth rate of government spending in the growth rate of national income, arising in the course of growing budget surpluses and the resulting increasing withdrawal effects ( " fiscal drag "). Thus, the progressive tax system acts as a monetary policy brake and hinders the goal of full employment.

Tax cuts or increased government spending could counteract this mechanism. Take the government spending in the course according to the varying tax revenue, the economy can be stabilized by automatically Budget deficits are formed during the boom automatically budget surpluses and in the recession. An increase in government spending disproportionately to the increase in tax revenue would be in the business cycle cause a formation of budget deficits. Financing for the economy, these deficits by borrowing, inflation is initiated and the private sector pushed back. Serve private savings to balance the budget deficits to rise to the interest rates and the private demand for investment opportunities decreases.

Since the unification Germany 1990, government spending has risen disproportionately to the tax revenue, ie high budget deficits have formed.

Overall, the economy will only temporarily dampened by automatic mechanisms and thus stabilized. Long term, these instruments seem more than destabilisers and can not eliminate economic fluctuations. For this complex monetary policy measures are necessary.

Microsimulation models

Based on the tax and transfer laws from 1 January 2008 to serve the micro-simulation models EUROMOD (19 European countries) and TAXSIM (USA) the calculation of taxes and transfers for deputy household micro-data sets in order to thus assess the effects of the automatic stabilizers. Using these models it is possible to analyze the impact on household income, while individual factors are varied or held constant in terms of a controlled experiment.

Examples

Unemployment Insurance ( Switzerland )

In Switzerland, the automatic stabilization of the economy plays a very important role by unemployment.

During the normal recessions, the effect of the automatic stabilizers is about one per cent of gross domestic product, in harder times even more. In Switzerland, on average, one year generate 10,000 unemployed issues of unemployment of 300 to 400 million Swiss francs, with an estimated 2009 number of 170,000 unemployed arise over 4 billion francs, which are paid as assistance to the unemployed and thus flow into the intake, whereby the recession dampened and the economy can be stabilized.

Progressive income tax

The progressive income tax is an automatic stabilizer of the revenue side. Depending on income, different tax rates are estimated. During the upward phase of the economy, the emergence of these tax increases faster than the national income, so that a possible excess demand is counteracted. During the recession, in turn, ensures this mechanism the demand.

Financial crisis from 2007

In the financial crisis of 2007, the automatic stabilizers were supplemented by government stimulus programs, tend to the more, the weaker the national automatic stabilizers were pronounced.