Automatic stabilizer

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Automatic stabilizer describes a fiscal policy mechanism to stabilize the economy , which varies the amount of government income and expenditure in the opposite direction to the course of the economy and thus stabilizes the economy as a whole in the short term. With this instrument, the time delays characteristic of a situation-specific economic policy , which arise from analysis and decision-making processes of the government and administration, can be avoided and the time until medium to long-term effects take effect on the basis of political decisions can be bridged.

effect

requirements

The stabilization apparatus is based on three requirements:

  1. In the course of an economic cycle, public income or expenditure fluctuates (= automatic flexibility or built-in flexibility).
  2. The economic development is dampened by the varying tax receipts and government expenditure , whereby the economic development is stabilized (= built-in stabilizer).
  3. There are no political guidelines that invalidate the mechanism and thus transform it into a destabilizer.

The effects of this economic instrument can come from tax revenues or social contributions that change within an economic cycle , as well as from cyclically varying government expenditures, especially social benefits .

Stationary economy

An example is the unemployment insurance system, which is able to dampen the economy on the income side as well as on the expenditure side:

During the boom, unemployment falls and the amount of benefit payments to the unemployed decreases. The contributions to the Federal Employment Agency increase, consequently the income with purchasing power is reduced. Overall, there is a dampening effect on the booming economy. In times of stagnation or downturn, unemployment insurance contributions decrease and payments to the unemployed increase, but the actual demand decreases less than would be the case in the absence of such an insurance system.

An essential factor for the extent of the automatic flexibility of tax revenues and the associated stabilization effect is the revenue elasticity (elasticity (economy) ) of the tax system. The larger this is, the more significant are the fluctuations in tax revenue during the economy. Furthermore, the revenue elasticity of the tax system depends on the elasticities of the individual taxes (direct and indirect taxes ) and their weight within the system. A high value of the revenue elasticity is advantageous for the stabilizing effect: the higher the revenue elasticity, the higher the additional tax receipts during the boom or the lower tax receipts during the downturn. Disproportionately high tax revenues in the boom reduce income and thus dampen the upswing, disproportionately low tax revenues in the recession have a relieving effect on citizens and result in higher, affluent income. The automatic dampening of the business cycle requires the following:

1. In the context of stagnation or the downturn, reduced tax receipts are not compensated for by a reduction in government spending, and government money is no longer spent during the boom, although increased tax receipts could make this possible. Balancing the state budget would lead to an automatic destabilizer.

2. The tax revenue runs almost synchronously with the course of an economy. A delayed development of the volume would reduce the automatic stabilization effect or even transform it into a destabilizer.

Growing economy

For the consideration in the context of a growing economy one has to consider some special points:

1. A high revenue elasticity requires a rapidly growing tax revenue, which increases the tax burden ratio (“fiscal dividend” of a progressive tax system). If the revenue elasticity of individual taxes is particularly high, their share of total tax revenue increases, while the share of other, indirect taxes decreases.

2. The effects of a high revenue elasticity depend largely on the development of government spending.

If the disproportionately high tax revenue is not offset by corresponding expenditure, i. H. If the growth rate of government expenditures corresponds to the growth rate of national income, there will be growing budget surpluses and the resulting increasing withdrawal effects (“fiscal drag”). The progressive tax system thus acts as a brake on monetary policy and hinders the goal of full employment.

Tax cuts or higher government spending could counteract this mechanism. If government expenditures increase in the course of the fluctuating tax revenue, the economy can be stabilized by automatically creating budget surpluses in the boom and budget deficits in the recession. An increase in government spending disproportionately to the increase in tax income would result in budget deficits in the course of the economy. If the economy finances these deficits through loans, inflation is initiated and the private sector is pushed back. If private savings are used to offset budget deficits, interest rates rise and private demand for investment opportunities declines.

Since the unification of Germany in 1990, government spending has risen disproportionately to tax revenue. H. high budget deficits have formed.

Overall, the economy is only temporarily dampened and thus stabilized by automatic mechanisms. In the long term, these instruments act more as destabilizers and cannot eliminate cyclical fluctuations. More complex monetary policy measures are necessary for this.

Microsimulation models

Based on the tax and transfer laws of January 1, 2008, the microsimulation models EUROMOD (19 European countries) and TAXSIM (USA) are used to calculate taxes and transfers for representative household micro-data sets in order to be able to estimate the effects of the automatic stabilizers. With the help of these models, it is possible to analyze the effects on household income. Individual factors are varied or kept constant in the sense of a controlled experiment.

Examples

Progressive income tax

In the case of progressive income tax, tax rates rise as income rises. During the upswing phase of the economy, the revenue from this tax rises faster than the national income. The state budget deficit is reduced or a budget surplus arises.

In a recession, tax revenue falls faster than national income. A budget deficit arises or increases. If the state does not try to prevent the resulting budget deficit through tax increases or spending cuts, an automatic fiscal policy stabilization of the economy arises .

unemployment insurance

In the economic downturn, unemployment rises. As a result, income from insurance contributions will decrease and unemployment insurance expenses will increase. Here, too, the excess expenditure creates a deficit that has a stabilizing effect on the fiscal channel.

Unemployment Insurance (Switzerland)

In Switzerland, the automatic economic stabilization through unemployment insurance plays a very important role. During normal recessions, the effect of the automatic stabilizers corresponds to around one percent of gross domestic product, and even more in difficult times. In Switzerland, an average of 10,000 unemployed people generate unemployment insurance expenses of 300 to 400 million francs in one year, with an estimated 170,000 unemployed in 2009, this results in over 4 billion francs, which are paid as support to the unemployed and thus flow into consumption, thereby dampening the recession and stabilizing the economy.

Financial crisis from 2007

In the financial crisis from 2007 onwards, the automatic stabilizers were supplemented by state economic stimulus programs, the weaker the national automatic stabilizers, the more so.

literature

  • Johannes Kalusche: The tax and social reforms of the years 1999-2005 on the automatic stabilizers of Germany . Bamberg 2010, ISBN 978-3-931052-84-3 (Working Paper No. 76).
  • Norman F. Keizer: The Development of the Concept of "Automatic Stabilizers" . The Journal of Finance, December 1956 (Vol. 11, No. 4 (Dec., 1956)).

Web links

swell

  1. ↑ Jürgen Pätzold: Stabilization Policy 6th Edition Bern, Stuttgart, Vienna 1998, ISBN 3-8252-1353-6 , p. 175 ff.
  2. ^ Mathias Dolls, Clemens Fuest, Andreas Peichl: How do the automatic stabilizers work in the economic crisis? Germany in comparison with the EU and the USA . IZA Standpunkte No. 19 Bonn September 2009, p. 3 and p. 6 ff.
  3. ^ Gabler Wirtschaftslexikon, Built-in Stability
  4. ^ Gabler Wirtschaftslexikon, Built-in Stability
  5. ↑ Die Volkswirtschaft, issue No. 3-2009, p. 42 ff.
  6. ↑ OECD Economic Outlook - Interim Report (March 2009) Figure 3.5 (PDF; 1.0 MB)