The Automatic Fiscal Stabilizers : Quietly Doing Their Thing

@inproceedings{Cohen1999TheAF,
  title={The Automatic Fiscal Stabilizers : Quietly Doing Their Thing},
  author={Darrel S. Cohen and Glenn Follette},
  year={1999}
}
This paper presents theoretical and empirical analysis of automatic fiscal stabilizers, such as the income tax and unemployment insurance benefits. Using the modern theory of consumption behavior, we identify several channels--insurance effects, wealth effects and liquidity constraints--through which the optimal reaction of household consumption plans to aggregate income shocks is tempered by the automatic fiscal stabilizers. In addition we identify a cash flow channel for investment. The… CONTINUE READING

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