Advantage of Built in Fiscal Stabilisers

Readers Question: What is the primary advantage of built in stabilizers over discretionary fiscal policy

Automatic fiscal stabilisers are mechanism by which Aggregate Demand is influenced by changing economic cycles without changing tax rates or levels of government spending.

For example, in a recession, the government will automatically collect less income and corporation tax. The government will also automatically spend more on unemployment benefit.

The benefit, is that there is no time lag and there is no necessity for policital agreement. This is because they happen automatically, without any change of policy. They are also automatically reversed.

e.g. the government often ‘forgets’ to reverse tax cuts (cuts in tax rates) in a boom because they have become politically unpopulat.

Also, they don’t cause government failure, because the government doesn’t have to think up schemes to spend the money on.

The disadvantage of course, is that they are often insufficient to prevent a boom or prevent recession.