“Fluctuations in the budget deficit are influenced by legislation that governs taxation and spending and by the automatic responses of revenues and outlays to developments in the economy and other factors. This report focuses on a component of the latter groupthe automatic stabilizersthat reflect cyclical movements in real (inflation-adjusted) output and unemployment. During cyclical slowdowns and recessions, the economy grows more slowly than it could if it achieved its potential, and revenue growth declines automatically as well. In addition, some spendingfor example, to pay unemployment insurance claims or to provide federal nutrition benefitsautomatically increases. Those automatic reductions in revenues and increases in outlays help to bolster the economy, but they also temporarily increase the budget deficit. The opposite occurs when there are upturns in the business cycle; that is, automatic stabilizers tend to shrink as the economy moves toward its potential output.”
Sorry, comments are closed for this post.