Federal receipts and outlays regularly respond to cyclical movements in the economy. When the economy is operating below its potential, personal income and other tax bases are depressed, causing revenues to be lower than if the economy was operating at its potential.
At such times, outlays for unemployment insurance benefits and other types of transfer programs are elevated. By contrast, when the economy is operating above its potential, revenues are higher and transfer payments are lower than would be the case if the economy was operating at its potential. Those "automatic stabilizers" thus tend to dampen the size of cyclical movements in the economy, by supporting or restraining private spending. (The effects of automatic stabilizers are in addition to the effects of any legislated changes in tax and spending policies.)
The Congressional Budget Office estimates the size of the automatic stabilizers using actual data for past years and the agency's current-law projections for current and future years by relating movements in various components of federal revenues and outlays to measures of cyclical movements in the economy.
Econintersect wants your comments,
data and opinion on the articles posted. As the internet is a
"war zone" of trolls, hackers and spammers - Econintersect must balance its
defences against ease of commenting. We have joined with Livefyre
to manage our comment streams.
To comment, using Livefyre just click the "Sign In" button at the top-left corner of
the comment box below. You can create a commenting account using your
favorite social network such as Twitter, Facebook, Google+, LinkedIn or
Open ID - or open a Livefyre account using your email address.
You can also comment using Facebook directly using he comment block below.
Print this page or create a PDF file of this page
The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.
Take a look at what is going on inside of Econintersect.com