14th journées Louis-André Gérard-Varet

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Crisis, Austerity and Automatic Stabilization
Christian Wittneben, Mathias Dolls, Clemens Fuest, Andreas Peichl

Last modified: 2015-05-11

Abstract


We analyze how reforms of tax-benefit systems in the period 2007-2013 have affected
the automatic stabilization capacity for households as well as government budgets in
the EU-27 based on harmonized European micro data and counterfactual simulation
techniques. Factors like unemployment benefits or (progressive) income taxes can stabilize
individual (and aggregate) income and smooth consumption demand in case of an income
and unemployment shock. Our analysis allows to disentangle automatic changes in net
government intervention from those that take place after explicit government legislature
(discretionary changes) as well as changes in actual incomes and behavioral responses. We
find automatic stabilizers to be generally heterogeneous across countries—both in levels
and in terms of policy changes over the crisis. Stabilization coefficients vary from less than
25% in Eastern European countries to almost 60% in Belgium, Germany, and Denmark.


Keywords


Fiscal Policy; Stabilization; Austerity; Crisis