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The Significance of Federal Taxes as Automatic Stabilizers

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Alan J. Auerbach
Daniel Feenberg

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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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7662.

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Date of creation: Apr 2000
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Handle: RePEc:nbr:nberwo:7662

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E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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  23. James P. Ziliak & Thomas J. Kniesner, 1999. "Estimating Life Cycle Labor Supply Tax Effects," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 326-359, April. [Downloadable!] (restricted)
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  24. Agell, Jonas & Dillen, Mats, 1994. "Macroeconomic externalities : Are Pigouvian taxes the answer?," Journal of Public Economics, Elsevier, vol. 53(1), pages 111-126, January. [Downloadable!] (restricted)
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