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Automatic Stabilizers in an Economy with Multiple Shocks

Author

Listed:
  • Morten Spange

    (Department of Economics, University of Aarhus, Denmark)

Abstract

A stochastic general equilibrium model is set up in order to analyse whether automatic stabilizers are a good tool in terms of mitigating risk. It is found that the potential benefits to be derived from automatic stabilizers depend on various factors including the degree of real wage rigidity and the size of the public sector. In countries with large public sectors automatic stabilizers in the sense of procyclical tax revenues can provide significant welfare improvements compared with a passive fiscal policy. For countries with smaller public sectors the predictions of the model are less favorable.

Suggested Citation

  • Morten Spange, 2004. "Automatic Stabilizers in an Economy with Multiple Shocks," Economics Working Papers 2004-3, Department of Economics and Business Economics, Aarhus University.
    • Handle: RePEc:aah:aarhec:2004-3
    as

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    File URL: https://repec.econ.au.dk/repec/afn/wp/04/wp04_03.pdf
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    References listed on IDEAS

    as
    1. Chand, Sheetal K. & Paldam, Martin, "undated". "The economics of immigration into a welfare state," Economics Working Papers 2003-18, Department of Economics and Business Economics, Aarhus University.
    2. Holler, Manfred & Skott, Peter, "undated". "The importance of setting the agenda," Economics Working Papers 2003-8, Department of Economics and Business Economics, Aarhus University.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Automatic stabilizers; Optimal fiscal policy; Real wage rigidity;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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