The Role of Automatic Stabilizers in the U.S. Business Cycle
Most countries have automatic rules in their tax-and-transfer systems that are partly intended to stabilize economic fluctuations. This paper measures how effective they are. We put forward a model that merges the standard incomplete-markets model of consumption and inequality with the new Keynesian model of nominal rigidities and business cycles, and that includes most of the main potential stabilizers in the U.S. data, as well as the theoretical channels by which they may work. We find that the conventional argument that stabilizing disposable income will stabilize aggregate demand plays a negligible role on the effectiveness of the stabilizers, whereas tax-and-transfer programs that affect inequality and social insurance can have a large effect on aggregate volatility. However, as currently designed, the set of stabilizers in place in the United States has barely had any effect on volatility. According to our model, expanding safety-net programs, like food stamps, has the largest potential to enhance the effectiveness of the stabilizers.
We are grateful to Alan Auerbach, Susanto Basu, Mark Bils, Yuriy Gorodnichenko, Narayana Kocherlakota, Karen Kopecky, Toshihiko Mukoyama, and seminar participants at Arizona State University, Berkeley, Board of Governors, Duke, Econometric Society Summer meetings, European Economic Association Annual Meeting, FRB Boston, FRB Minneapolis, Green Line Macro Meeting, HEC montreal, the Hydra Workshop on Dynamics Macroeconomics, Indiana University, LAEF - UC Santa Barbara, NBER EFG meeting, Nordic Symposium on Macroeconomics, Royal Economic Society Annual Meetings, Russell Sage Foundation, Sciences Po, the Society for Economic Dynamics annual meeting, Stanford, and Yale for useful comments. Reis is grateful to the Russell Sage Foundation's visiting scholar program for its financial support and hospitality. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Ricardo A. M. R. Reis
Outside Professional Activities, 2010-2013
Columbia University, CEPR, and NBER[*]
Teaching and lecturing
Study Center, Gerzensee, Switzerland: lecturer, 2011.
Cowles Foundation, Yale University: visitor and lecturer, 2011.
Banco Central do Brasil: lecturer, 2011.
International Monetary Fund Institute: lecturer, 2010-12.
Journal of Monetary Economics: co-editor, 2010-13.
Advisory panels and visiting positions
Brookings Papers on Economic Activity: panel member, 2010-13
Federal Reserve Bank of New York: academic consultant and visiting scholar, 2011-13.
Federal Reserve Bank of Minneapolis: academic consultant, 2013.
Federal Reserve Bank of Richmond: academic consultant, 2013
Russell Sage Foundation: visiting scholar, 2011-12.
Compensated or supported research and writing
Opinion columns published in Portuguese newspapers (Expresso, i, Dinheiro Vivo, Visão História), 2010-13.
Articles published in the Brookings Papers on Economic Activity, 2012-13.
Member of the euro-nomics group advocating for original solutions to the European crisis.
Member of SEDES blog, theportugueseeconomy.blogspot.com and of the advisory council of “Plataforma para o Crescimento Sustentável”, independent reflection groups / think tanks on the state and future of Portugal.
Member of ISEG Budget Watch, panel of independent experts evaluating the Portuguese government budget proposals.
Member of the Monetary Policy Advisory Panel, FRB New York.
[*] This document follows the NBER guidelines at www.nber.org/researchdisclosurepolicy.html
Alisdair McKay & Ricardo Reis, 2016. "The Role of Automatic Stabilizers in the U.S. Business Cycle," Econometrica, Econometric Society, vol. 84, pages 141-194, 01. citation courtesy of