1887

OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

Automatic fiscal stabilisers: Recent evolution and policy options to boost their effectiveness

Building on the automatic fiscal stabilisers literature, this paper assesses how automatic stabilisers have evolved over the past two decades by analysing changes in the personal income tax and social benefit systems. In three-quarters of the 35 OECD countries analysed, indicators of the strength of automatic stabilisers (aggregate elasticities of household income after tax with respect to the cycle and aggregate net replacement rates) changed little or moderately over the past two decades, suggesting broadly stable automatic stabilisers of household disposable income. The paper discusses pros and cons of several policy options to strengthen automatic stabilisers in the current environment. The effectiveness and possible side effects, particularly related to disincentives to work, vary across policy options. Consequently, policy reform proposals should be carefully assessed in a country-specific context and take into account other important policy objectives of tax and benefit systems.

English

Keywords: automatic fiscal stabilisers, business cycles, fiscal policy
JEL: E6: Macroeconomics and Monetary Economics / Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook; E32: Macroeconomics and Monetary Economics / Prices, Business Fluctuations, and Cycles / Business Fluctuations; Cycles; H31: Public Economics / Fiscal Policies and Behavior of Economic Agents / Fiscal Policies and Behavior of Economic Agents: Household; H6: Public Economics / National Budget, Deficit, and Debt
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