The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Built-In Stabilizers

  • Joseph A. Pechman
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_482

Abstract

Built-in stabilizers are automatic fiscal adjustments that reduce the national income multiplier and thus cushion the effect of changes in autonomous spending on the level of income. Suppose the multiplier is 1/(1 – c) in an economy with no tax or with a lump sum tax, where c is the marginal propensity to consume. With a proportional income tax, t, the multiplier is reduced to 1/c(1–c(1–t)].

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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Joseph A. Pechman
    • 1
  1. 1.