Chapter 2: Can Fiscal Policy Stabilize Output?, April 2015. “As interest rates close to their lower bound limit the ability of monetary policy to smooth fluctuations in economic activity, this chapter of the Fiscal Monitor looks into how fiscal policy can do so. The two main findings are that fiscal policy is often used to reduce output volatility, especially in advanced economies, and that the more stable macroeconomic environment that results is in turn conducive to higher average growth. Automatic stabilizers alone (mainly tax payments and social transfers) can contribute substantially to output stabilization. Yet policymakers rarely let them operate freely as revenue windfalls due to stronger growth tend to be spent, raising deficits and public debts. Stability and growth would both benefit greatly if procyclical fiscal measures were avoided. The chapter also explores options to enhance automatic stabilizers without unduly raising marginal income tax rates or the generosity of social transfers.”