โ Scribed by Uri, Noel D.
No coin nor oath required. For personal study only.
This paper examines the question of the stability of automatic stabilizers in the United States. Using a test suggested by Brown, Durbin and Evans, the analysis suggests that the magnitude of automatic stabilization of economic activity afforded by personal tax receipts has remained virtually invariant over the period 1939-1985. The automatic stabilization effectiveness of transfer payments, however, has increased, especially since 1964. This is attributed to the implementaton of various Great Society Programs beginning in 1964.
KEY WORDS Automatic stabilizers Cusum of squares test Transfer payments *The views expressed are those of the author and do not necessarily represent the policies of the U.S. Department of Agriculture or the views of other Department of Agriculture staff members. tThe reader interested in being reminded of the operation of automatic stabilizers is referred to Reference I , p. 501, ff. $For example, suppose the level of economic activity declines. With a reduction in output and employment, taxes will fall automatically and government transfer payments (e.g. in the form of unemployment compensation) increase. These changes prevent personal income and consumption expenditures from decreasing as much as they would in the absence of automatic stabilizers. Consequently, the decline in economic activity is not as great in magnitude as it otherwise would be.
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