Automatic Stabilizers and Economic Crisis: US vs. Europe / Mathias Dolls, Clemens Fuest, Andreas Peichl.

Format:

Book

Author/Creator:

Dolls, Mathias.

Contributor:

Fuest, Clemens, 1968-

Peichl, Andreas.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w16275.

NBER working paper series no. w16275

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Automatic Stabilizers and Economic Crisis

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2010.

Summary:

This paper analyzes the effectiveness of the tax and transfer systems in the European Union and the US to act as an automatic stabilizer in the current economic crisis. We find that automatic stabilizers absorb 38 per cent of a proportional income shock in the EU, compared to 32 per cent in the US. In the case of an unemployment shock 47 percent of the shock are absorbed in the EU, compared to 34 per cent in the US. This cushioning of disposable income leads to a demand stabilization of up to 30 per cent in the EU and up to 20 per cent in the US. There is large heterogeneity within the EU. Automatic stabilizers in Eastern and Southern Europe are much lower than in Central and Northern European countries. We also investigate whether countries with weak automatic stabilizers have enacted larger fiscal stimulus programs. We find no evidence supporting this view.

Notes:

August 2010.

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