Built-in fiscal stabilizers in the United States

Abstract

The Employment Act of 1946 implies a recognition on the part of the American Government of its responsibility to moderate fluctuations in economic activity. Built-in stabilizers are devices in the government tax and expenditure system which go into effect automatically to mitigate the effect pn total expenditures of changes, in either direction, in particular sectors or components of the economy, i. e., to smooth the business cycle. There are five significant built-in stabilizers in the United States: the personal income tax, the corporate income tax, the excise and sales taxes, the unemployment insurance disbursements, and the Old Age and Survivors Insurance tax. As national income falls in recession, tax collections decline and unemployment insurance disbursements increase; an increase in the budget deficit (or decrease in the surplus) is thus generated. As national income advances in the expansion phase, the opposite effect takes place. This paper estimates the magnitude of this contracyclical swing in the government budget, which we shall call the total "stabilization effect".