Automatic stabilizers and economic crisis: US vs. Europe Dolls, Mathias; Fuest, Clemens; Peichl, Andreas

User activity

Share to:
View the summary of this work
Dolls, Mathias ; Fuest, Clemens ; Peichl, Andreas
Appears In
The Journal of Public Economics
Income tax -- Analysis; Financial crises -- Analysis; Tax Law
Academic; Trade
To link to full-text access for this article, visit this link: Byline: Mathias Dolls, Clemens Fuest, Andreas Peichl Keywords: Stabilization; Income insurance; Liquidity constraints; Fiscal stimulus Abstract: This paper analyzes the effectiveness of the tax and transfer systems in the EU and the US to provide income insurance through automatic stabilization in the recent economic crisis. We find that automatic stabilizers absorb 38% of a proportional income shock in the EU, compared to 32% in the US. In the case of an unemployment shock 47% of the shock is absorbed in the EU, compared to 34% in the US. This cushioning of disposable income leads to a demand stabilization of up to 30% in the EU and up to 20% in the US. There is large heterogeneity within the EU. Automatic stabilizers in Eastern and Southern Europe are much lower than in Central and Northern European countries. We also investigate whether countries with weak automatic stabilizers have enacted larger fiscal stimulus programs. Article History: Received 13 December 2010; Revised 20 June 2011; Accepted 2 November 2011 Article Note: (footnote) [star] This paper uses EUROMOD version D21 and TAXSIM v9. EUROMOD and TAXSIM are continually being improved and updated and the results presented here represent the best available at the time of writing. Our version of TAXSIM is based on the Survey of Consumer Finances (SCF) by the Federal Reserve Board. EUROMOD relies on micro-data from 17 different sources for 19 countries. These are ECHP and EU-SILC (Eurostat), Austrian version of ECHP (Statistik Austria); PSBH (University of Liege and University of Antwerp); Estonian HBS (Statistics Estonia); Income Distribution Survey (Statistics Finland); EBF (INSEE); GSOEP (DIW Berlin); Greek HBS (National Statistical Service of Greece); Living in Ireland Survey (ESRI); SHIW (Bank of Italy); PSELL-2 (CEPS/INSTEAD); SEP (Statistics Netherlands); Polish HBS (Warsaw University); Slovenian HBS and Personal Income Tax database (Statistical Office of Slovenia); Income Distribution Survey (Statistics Sweden); and the FES (UK ONS through the Data Archive). Material from the FES is Crown Copyright and is used by permission. Neither the ONS nor the Data Archive bears any responsibility for the analysis or interpretation of the data reported here. An equivalent disclaimer applies for all other data sources and their respective providers. This paper is partly based on work carried out during Andreas Peichl's visit to ECASS at ISER, University of Essex, supported by the EU Improving Human Potential Programme. Andreas Peichl is grateful for financial support by DFG (PE1675). Clemens Fuest acknowledges financial support from the ESRC (grant no RES-060-25-0033). We would like to thank the editor, Thomas Piketty, Danny Blanchflower, Dean Baker, Bob Chirinko, Daniele Franco, Horacio Levy, Torfinn Harding, Tommaso Monacelli, Matt Murray, Terry O'Shaughnessy and Morten Ravn, participants of the 2009 IZA/CEPR ESSLE conference, the 6th German-Norwegian Seminar on Public Economics (CESifo), the 2010 IZA/OECD workshop, the NBER/IGIER TAPES meeting, the National Tax Association as well as seminar participants in Bonn, Chicago Federal Reserve Bank, Cologne, Nuremberg, Siegen and at the Worldbank for helpful comments and suggestions. We are grateful to Daniel Feenberg for granting us access to NBER's TAXSIM and helping us with our simulations. We are indebted to all past and current members of the EUROMOD consortium for the construction and development of EUROMOD. The usual disclaimer applies.
Work ID

User activity

e.g. test cricket, Perth (WA), "Parkes, Henry"

Separate different tags with a comma. To include a comma in your tag, surround the tag with double quotes.

Be the first to add a tag for this work

Be the first to add this to a list

Comments and reviews

What are comments? Add a comment

No user comments or reviews for this work

Add a comment

Show comments and reviews from Amazon users