The Significance of Federal Taxes as Automatic Stabilizers

Author/Editor:

Gabriel Di Bella

Publication Date:

November 1, 2002

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

In this paper, a simple methodology to assess the effectiveness of automatic stabilizers is proposed and empirically tested using French data for the period 1970-2000. The paper concludes that fiscal stabilizers have dampened output variability by approximately 35 45 percent depending on the measure of potential output used. In addition, the results indicate that fiscal stabilizers mainly operated through the reduction of private investment fluctuations from 1970 to 1985, and through the reduction of private consumption variability thereafter. Due to the counterfactual nature of the analysis performed, the simplicity of the theoretical model, and simultaneity issues that might introduce biases, the results can at most be interpreted as approximations of the phenomenon that is analyzed.

Series:

Working Paper No. 2002/199

Subject:

Automatic stabilizers Disposable income Fiscal policy General government spending National accounts Private consumption Private investment Public financial management (PFM)

English

Publication Date:

November 1, 2002

ISBN/ISSN:

9781451860122/1018-5941

Stock No:

WPIEA1992002

Pages:

36

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