Abstract
We analyze the effect of tax expenditures on the stabilizing power of the tax system. We propose a microsimulation strategy which exploits links that we identify between automatic stabilizers, tax expenditures, and effective marginal tax rates. Using the Survey of Consumer Finances from 1988 to 2009, we estimate that, on average, the Mortgage Interest Deduction and the Charitable Contributions Deduction increased the sensitivity of consumption to income fluctuations from a baseline of 0.14 by 1.13% and 0.97%, respectively.
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