The Significance of Federal Taxes as Automatic Stabilizers

IMF Working Papers, November 1, 2002

Source details

Canonical URL

The Significance of Federal Taxes as Automatic Stabilizers

Other formats

• Markdown version
• Structured JSON version
• Bundle manifest

Bibliographic details

• Authors: Gabriel Di Bella
• Published: November 1, 2002
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451860122.001

Summary and Main Findings

• Proposes a simple methodology to assess the effectiveness of automatic stabilizers and empirically tests it using French data for the period 1970-2000.
• Concludes that fiscal stabilizers have dampened output variability by approximately 35 45 percent depending on the measure of potential output used.
• Finds that fiscal stabilizers mainly operated through:
  • reduction of private investment fluctuations from 1970 to 1985, and
  • reduction of private consumption variability thereafter.
• Notes that, due to the counterfactual nature of the analysis, the simplicity of the theoretical model, and simultaneity issues that might introduce biases, the results can at most be interpreted as approximations.

Methodology and Scope

• Uses a simple theoretical model and a counterfactual analysis framework applied to French data.
• Empirical sample covers the period 1970-2000.
• Focuses on the role of federal taxes as automatic stabilizers in moderating GDP fluctuations through effects on disposable income, private consumption, and private investment.

Policy-Relevant Insights

• Automatic fiscal stabilizers have a material dampening effect on output variability in the French context over 1970-2000.
• The channels of stabilization shift over time: private investment in 1970–1985; private consumption thereafter.
• Caution is warranted when interpreting quantitative magnitudes because of model simplicity and potential simultaneity biases inherent in the counterfactual approach.

Subjects and Keywords

• Subjects: Automatic stabilizers, Disposable income, Fiscal policy, General government spending, National accounts, Private consumption, Private investment, Public financial management (PFM)
• Keywords: Automatic stabilizers, automatic stabilizers work, consumption expenditure, consumption model, Disposable income, effect of automatic stabilizers, Europe, fiscal policy, France, GDP fluctuation, General government spending, mover accent, potential GDP, Private consumption, Private investment, WP

Source: IMF Working Paper — "The Significance of Federal Taxes as Automatic Stabilizers" by Gabriel Di Bella (November 1, 2002).

Content in this bundle

• Automatic Fiscal Stabilizers in France - WP/02/199
  • Automatic Fiscal Stabilizers in France - WP/02/199 (Markdown version)
  • Automatic Fiscal Stabilizers in France - WP/02/199 (PDF)