Editing Automatic stabilizer (section)

{{Short description|Self-adjusting fiscal tools for economic stability}}
In [[macroeconomics]], '''automatic stabilizers''' are features of the structure of modern [[government budget]]s, particularly [[income tax]]es and [[Welfare (financial aid)|welfare spending]], that act to damp out fluctuations in [[real GDP]].<ref>{{cite book
  | last = O'Sullivan
  | first = Arthur
  | authorlink = Arthur O'Sullivan (economist) 
  | first2 = Steven M. | last2 = Sheffrin
  | title = Economics: Principles in Action
  | url = https://archive.org/details/economicsprincip00osul
  | url-access = limited
  | publisher = Pearson Prentice Hall
  | year = 2003
  | location = Upper Saddle River, New Jersey
  | page = [https://archive.org/details/economicsprincip00osul/page/n415 399]
  | isbn = 0-13-063085-3}}</ref>

The size of the [[government budget deficit]] tends to increase when a country enters a [[recession]], which tends to keep national income higher by maintaining [[aggregate demand]]. There may also be a [[multiplier (economics)|multiplier effect]]. This effect happens automatically depending on GDP and household income, without any explicit policy action by the government, and acts to reduce the severity of recessions.<ref>{{Cite web|url=https://www.taxpolicycenter.org/briefing-book/what-are-automatic-stabilizers-and-how-do-they-work|title=What are automatic stabilizers and how do they work?|website=Tax Policy Center}}</ref> Similarly, the budget deficit tends to decrease during booms, which pulls back on aggregate demand. Therefore, automatic stabilizers tend to reduce the size of the fluctuations in a country's GDP.