The number of unemployed and those in need of welfare benefits increase during a recession. It is the government responsibility to pay welfare and unemployment benefits to its citizens. So in general if the national income is high so is the tax the government will receive. Also the corporate taxes paid to the government will also decrease because with low national income so is the low profits the corporate gain. If the income decreases eventually the average tax will decreases. This is because as an individual’s income rises, so does the average tax paid to the government. Induced taxesĭuring recessions the tax revenue decreases proportionately to the national income. Also in imports the government decreases the import of goods in recessions and increases them in booms (Sargent, 1979). In transfer payments the government will have to reconsider its payment of transfer payments in booms and recession because various factors change in booms and recessions.
In induced taxes it generally sets the taxes at a lower rate in a recession because many taxpayers have low income levels. The existence of an automatic stabilizer lessens the multiplier and hence it aides in decreasing fluctuations in the real national income, when changes in usage of the national income occurs.Īn automatic stabilizer helps in resettling induced taxes, transfer payments and imports and exports. It helps in keeping the economy stable because it keeps the import at low levels during recession hence ensures that the national income is spent domestically and not in foreign markets.Īny practices or institution in a domestic economy that helps in the reduction of fluctuations in the economy by manipulating the money in circulation and available for spending otherwise known as disposable income is an automatic stabilizer (Souleles, 1999).
It uses a multiplier to keep the national income at high levels even when the government incurs a deficit during an economic recession. No lawyer-client, advisory, fiduciary or other relationship is created by accessing or otherwise using the Incorporated.Zone's website or by communicating with Incorporated.Zone by way of e-mail or through our website.An economic stabilizer is an economic policy that automatically rises and falls to counter immediate trend without necessarily involving the government. It is not intended to provide legal advice or opinions of any kind. The material provided on the Incorporated.Zone's website is for general information purposes only. I will only refer my audience to companies that are reputable, offer great products and services, and can bring you value.ĭISCLAIMER. I also participate in affiliate advertising programs that are thoroughly vetted, such as that of and others, where I may earn a commission by linking to the affiliated company's products and services.
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