Automatic stabilisers
Definition. Automatic stabilisers are features of government taxation and spending that moderate fluctuations in national income without any deliberate change in policy. During a downturn, tax revenue falls and welfare spending rises automatically, cushioning the fall in aggregate demand, while the reverse dampens a boom.
Progressive income taxes and unemployment related transfers are the main examples. They act counter cyclically and operate faster than discretionary fiscal measures because no new legislation is needed.
This term belongs to Fiscal Policy in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
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