The Significance of Federal Taxes as Automatic Stabilizers
Using the TAXSIM model for the period 1962-95, we consider the federal tax system's impact as an automatic stabilizer. Despite the many changes in the tax system, there has been relatively little change in its role as an automatic stabilizer. We estimate that individual federal taxes offset perhaps as much as 8 percent of initial shocks to GDP. We also suggest that the progressive income tax may help to stabilize output via its effect on the supply of labor, an additional effect that may even be of similar magnitude to the more traditional path of stabilization through aggregate demand.
Published: Published as "The Significance of Federal Taxes as Automatic Satbilizers," The Journal of Economic Perspectives, Volume 14, Number 3 (Summer 2000): Pages 37-56.