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Journal of Economic Perspectives: Vol. 14 No. 3 (Summer 2000)

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The Significance of Federal Taxes as Automatic Stabilizers

Article Citation

Auerbach, Alan J., and Daniel R. Feenberg. 2000. "The Significance of Federal Taxes as Automatic Stabilizers." Journal of Economic Perspectives, 14(3): 37-56.

DOI: 10.1257/jep.14.3.37

Abstract

Using the TAXSIM model for the period 1962-95, we consider the federal tax system's impact as an automatic stabilizer. Despite the many changes in the tax system, there has been relatively little change in its role as an automatic stabilizer. We estimate that individual federal taxes offset perhaps as much as 8 percent of initial shocks to GDP. We also suggest that the progressive income tax may help to stabilize output via its effect on the supply of labor, an additional effect that may even be of similar magnitude to the more traditional path of stabilization through aggregate demand.

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Authors

Auerbach, Alan J. (U CA, Berkeley and NBER)
Feenberg, Daniel R. (NBER)

JEL Classifications

E62: Fiscal Policy

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