Definition of automatic stabilisers

Automatic stabilisers, or automatic fiscal stabilisers, are budgetary arrangements that help smooth output without the explicit intervention of a country's fiscal authority. Taxes are a source of automatic stabilisation in that they tend to follow their respective tax base: they increase during upturns and shrink during downturns.

Other economic variables that also tend to change automatically in line with economic conditions are also argued to have a stabilising effect on activity. For instance, unemployment benefits are seen as an automatic stabiliser, as they tend to increase in line with unemployment, feeding through to consumer spending and eventually helping to boost the job market. Other automatic stabilisers include interest rates.

Automatic stabilisation is therefore largely the welcome but unintentional effect of budgetary arrangements that were designed to serve other purposes.

 

automatic stabiliser in the news

In December 2012 an FT writer commented that the Federal Reserve's announcement that it would buy as many bonds as were necessary, rather than specifying how many it would purchase monthly, was an automatic stabiliser.

In June 2013 a shortage in the supply of scrap metal was boosting investor interest in copper again. The shortage of scrap copper would result in a balanced supply of copper over the coming year, instead of a surplus. An analyst commented that scrap was an automatic stabiliser for the copper market.

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