3/24/2023 0 Comments Automatic stabilizers![]() And government size-measured by the GDP ratio of government spending-plays the role of an automatic stabilizer, but its smoothing effect is very weak. Simulation results seem to suggest an invariance property for middle-income countries: the amplitude of the business cycle is independent of the tax structure. The model captures many of the salient features of Latin America's business cycle facts and finds that the degree of smoothing provided by the automatic revenue stabilizers-described by various properties of the tax system-is negligible. ![]() ![]() Calibrating the model economy to a typical Latin American economy allows the evaluation of its ability to mimic the region's observed business cycle frequency properties and the assessment of the quantitative relationship between tax code parameters, business cycle forcing variables, and business cycle behavior. The economy faces multiple sources of business cycle fluctuations: (1) world capital market shocks (2) world business cycle shocks (3) terms of trade shocks (4) government spending shocks and (5) nontradable and (6) tradable sector technology innovations. It utilizes a progressive or flexible taxation system and transfers payments to stabilize income, consumption, and corporate spending levels quickly to stimulate aggregate demand. It enables the government to address the economic issues without adding to its workload or depleting the budget. There are 2 versions of this paper Date Written: ApAbstract We assess the extent to which unemployment insurance (UI) serves as an automatic stabilizer to mitigate the economys sensitivity to shocks. Nashville, TN: American Economic Association. Data and code for: Automatic stabilizers in a low-rate environment. 24.2.2.2 Indicators of Automatic Stabilization Another closely related group of indicators characterize how tax-benefit systems act as automatic stabilizers for income or unemployment shocks, as indicated by the extent to which (aggregate) household income or tax revenue fluctuations are moderated without direct government action. In my view (which may not reflect the official 'MMT Party Line'), one of the keys strengths of MMT is that it is largely. Blanchard, Olivier, and Summers, Lawrence. It introduces a relatively rich tax structure into a dynamic, stochastic, multi-sector small open economy inhabited by rule-of-thumb consumers (who consume their wages and do not save or borrow) and Ricardian households to study the stabilizing properties of different parameters of the tax code. An automatic stabilizer in economics is a budgetary policy to counterbalance negative economic growth. The recent internet debates about Modern Monetary Theory (MMT) have been interesting, but the various critics of MMT have largely missed the elephant in the room: automatic fiscal stabilisers. This paper measures the size of automatic fiscal revenue stabilizers and evaluates their role in Latin America.
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