ABSTRACT

Effects of Automatic Stabilizers on the Federal Budget as of 2013   [open pdf - 193KB]

From the Document: "During recessions, federal tax liabilities and, therefore, revenues decline automatically with the reduction in output and income. In addition, some federal outlays--to pay unemployment insurance benefits, for example-- automatically increase. Such reductions in revenues and increases in outlays--known as automatic stabilizers-- help bolster economic activity during downturns, but they also temporarily increase the federal budget deficit. Conversely, when real (inflation-adjusted) gross domestic product (GDP) moves up closer to the maximum sustainable output of the economy (termed potential GDP), revenues automatically rise and outlays automatically fall. Under those circumstances, automatic stabilizers offer a smaller boost to economic activity and thereby slow its growth. (Those effects of automatic stabilizers are in addition to the effects of any legislative changes in tax and spending policies.) The Congressional Budget Office (CBO) uses statistical techniques to estimate the effects of the business cycle on federal revenues and outlays and, thus, on federal budget deficits. According to CBO's estimates, automatic stabilizers added significantly to the budget deficit--and thereby helped to strengthen economic activity--in fiscal years 2009 through 2012. Given CBO's economic and budgetary projections under current law, the agency expects that automatic stabilizers will continue to add significantly to the budget deficit and to support economic activity in 2013 and 2014 but that their effects on the budget and the economy will decline significantly from 2015 through 2018 in response to improving economic conditions."

Publisher:
Date:
2013-03
Copyright:
Public Domain
Retrieved From:
United States. Congressional Budget Office: http://www.cbo.gov/
Format:
pdf
Media Type:
application/pdf
URL:
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