Especially in countries like Greece, Ireland, Italy, Portugal and Spain, the counter-cyclical effect of automatic stabilizers has been partly or completely offset by pro-cyclical benefit cuts or tax hikes, in particular during the euro-area debt crisis. Automatic stabilizers have been constrained in several EU countries by subsequent fiscal consolidation measures. Notable exceptions are Ireland and Estonia where the functioning of automatic stabilizers was hampered by discretionary policy changes. Our analysis shows further that automatic stabilizers could operate freely in the early phase of the financial and economic crisis. That is, countries with relatively low (high) stabilization coefficient in 2007 tended to be more likely to raise (reduce) taxes and social insurance contributions. Changes in tax-benefit systems in recent years have led to a slight reduction in the dispersion of income stabilization coefficients. Income stabilization coefficients range from 20 to 30 percent in some Eastern and Southern European countries to around 60 percent in Belgium, Germany, and Denmark. Our results show that automatic stabilizers are heterogeneous across EU countries. In addition, we propose and derive a novel measure the income stabilization coefficient under time-varying policy that indicates to what extent governments let automatic stabilizers play out taking discretionary changes of the tax-benefit system into account. Relating the change in taxes and benefits to the income change yields the income stabilization coefficient under constant policy as a measure of automatic stabilization. Footnote 3 We compute how direct taxes, social insurance contributions as well as transfers change in response to the simulated income change. The shock is the same in all countries and affects all households equally, thus enabling us to construct a comparable measure across countries. ( 2012), this measure of the stabilizing effect of the tax and transfer system is calculated for a stylized proportional shock of 5 percent to household gross incomes ( income shock). ( 2012), which is an extension of the normalized tax change (Pechman 1973, 1987 Auerbach and Feenberg 2000).
We build on the income stabilization coefficient proposed by Dolls et al. This is important in order to assess the shock-absorption capacity of the tax and transfer system and the interaction between discretionary policy measures and automatic stabilizers. Our analysis allows to disentangle automatic effects from those that take place after explicit government legislature ( discretionary policy changes). Footnote 2 Specifically, we analyze how changes in tax-benefit systems over the period 2007–2014 have affected the workings of automatic stabilizers in the EU member states. ( 2012) in using micro data and counterfactual simulation techniques for our analysis of automatic stabilizers. To circumvent the problem of endogeneity, we follow the approach of Auerbach and Feenberg ( 2000) and Dolls et al. Footnote 1 However, these variables are endogenous to changes in household incomes as tax payments decrease (for a given progressive tax system) or (unemployment) benefits increase when households earn lower incomes or become unemployed. Traditional approaches based on macro data typically used aggregate variables on government revenue and spending as proxies for automatic stabilizers. 2013 Di Maggio and Kermani 2016) or structural models (McKay and Reis 2016). Previous work on automatic stabilizers has mostly relied on macro data (see, e.g., Fatás and Mihov 2001 in’t Veld et al. In this situation the right balance between fiscal support for the economy and fiscal consolidation is again of key importance (McKay and Reis 2016 Blanchard and Summers 2020).Īutomatic stabilizers are those elements of the tax and transfer system that mitigate fluctuations in output without discretionary government action. In the post-COVID-19 recovery, public debt levels have risen again all throughout Europe, and monetary policy is near or at the zero lower bound. This paper is the first to investigate the effects of fiscal expansions during the Great Recession and subsequent fiscal consolidation measures (often labeled “austerity”) in Europe on automatic stabilizers. Tax increases and spending cuts aimed at reducing soaring government budget deficits, but in many cases they exacerbated losses in household incomes, undermining fiscal stabilization effects. The Great Recession and the resulting sovereign debt crisis in Europe have caused many countries to take fiscal consolidation measures.
0 kommentar(er)
