Automatic Fiscal Stabilizers
IMF Staff Position Notes, September 28, 2009
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Bibliographic details
- Authors: Steven A. Symansky, Thomas Baunsgaard
- Published: September 28, 2009
- Series: IMF Staff Position Notes
- DOI: https://doi.org/10.5089/9781455290567.004
Executive summary
- Discusses how to enhance automatic stabilizers without increasing the size of government.
- Distinguishes between:
- Permanent changes in the parameters of the tax and expenditure system (for example, changes in tax progressivity) that enhance the traditional automatic stabilizer.
- Temporary changes triggered by certain economic developments (for example, tax measures targeted at credit and liquidity constrained households, triggered during a severe downturn).
- Argues that, with some exceptions, temporary, triggered measures are preferable because they can be implemented with lower disruptions to other fiscal policy goals (for example, economic efficiency).
- Warns that countries should avoid introducing procyclicality as a result of fiscal rules, since such procyclicality would offset the effect of existing automatic stabilizers.
Key findings and analysis
- Permanent parameter changes (e.g., greater tax progressivity) can strengthen the traditional automatic stabilizer but may have trade-offs with other fiscal objectives, including economic efficiency.
- Temporary, event-triggered measures (e.g., targeted tax measures for credit- and liquidity-constrained households during severe downturns) can enhance stabilization while limiting long-term distortions.
- Fiscal rules that induce procyclicality undermine the effectiveness of automatic stabilizers by offsetting their stabilizing impact.
Policy recommendations
- Prioritize temporary, triggered fiscal measures to enhance stabilization without expanding the permanent size of government.
- Use targeted tax measures for households that are credit- and liquidity-constrained during severe downturns to maximize macroeconomic stabilization while preserving efficiency.
- Design fiscal rules to avoid procyclical incentives that would counteract automatic stabilizers.
- Consider exceptions where permanent parameter changes are justified, but weigh these carefully against potential efficiency costs.
Source: IMF Staff Position Note "Automatic Fiscal Stabilizers" by Steven A. Symansky and Thomas Baunsgaard.
Content in this bundle
- _spn0923 - Executive Summary