Brexit has raised the possibility of a recession on both sides of the Atlantic. Unable to use traditional remedies like monetary or fiscal policy stimulus, policymakers may consider automatic fiscal stabilisers. This column examines the impact of automatic stabilisers through social insurance on the business cycle, and how its impact can be used to mitigate recession. Unemployment insurance or food stamps would be better than progressive taxes at stimulating aggregate demand. The main economic channels policymakers must consider are those related to risk and precautionary savings.
Alisdair McKay, Ricardo Reis, 14 July 2016
Marco Buti, Vitor Gaspar, 10 December 2015
Designing fiscal policy for today’s complex and uncertain economic climate is a problem that perplexes governments worldwide. This column proposes a solution – a new fiscal architecture with strengthened but budget-neutral automatic stabilisers. It won’t be easy, but overcoming predominantly political challenges will help foster steady and enduring growth.
Anusha Chari, Peter Blair Henry, 06 March 2015
In the wake of the Great Recession, a contentious debate has erupted over whether austerity is helpful or harmful for economic growth. This column compares the experiences of the East Asian countries – whose leaders responded to the East Asian financial crisis with expansionary fiscal policy – with those of the European periphery countries during the Great Recession. The authors argue that it was a mistake for the European periphery countries to pivot from fiscal expansion to consolidation before their economies had recovered.
Robert Solow, 01 April 2011
Robert Solow of MIT talks to Viv Davies about discretionary fiscal policy, the fiscal multiplier and automatic stabilisers in light of the financial crisis. They also discuss growth prospects for the US, the importance of international coordination of fiscal policy in Europe, the need for a more sophisticated industrial policy and the issue of global imbalances. The interview was recorded in Washington DC in March 2011 at the IMF conference, ‘Macro and Growth Policies in the Wake of the Crisis’. [Also read the transcript]
Mathias Dolls, Clemens Fuest, Andreas Peichl, 17 September 2010
While debate rages over the appropriate size and timing of fiscal expansions, this column points out that much less attention is devoted to role of the automatic stabilisers in the tax and transfer system. It compares these stabilisers in Europe and the US, finding that social transfers play a key role in the stabilisation of disposable incomes and consumer demand.
Dennis Snower, 20 May 2009
Under the threat of the financial crisis, US banks have received, without much controversy, huge bailouts. This column argues that the rescue plan ought to act as an automatic stabiliser, providing large bailouts to those institutions whose toxic assets turn out to be worth little and smaller bailouts to those whose toxic assets are worth more. But that is precisely what the Geithner Plan doesn’t do.
Max Corden, 19 May 2009
CEPR Policy Insight No.34 takes a close look at the Keynesian theory underlying the policy of fiscal stimulus being undertaken or considered in many countries, led by the US.
Max Corden, 19 May 2009
Conservative critics of fiscal stimulus policies usually criticise such policies because of the public debt burden they create. This column introduces a new CEPR Policy Insight, which takes a close look at the Keynesian theory underlying the policy of fiscal stimulus being undertaken or considered in many countries, led by the US