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Designing effective automatic stabilisers of the business cycle

McKay, Alisdair, Reis, Ricardo, (2016), “Designing effective automatic stabilisers of the business cycle”, Voxeu, 14 July

Brexit has raised the possibility of a recession on both sides of the Atlantic. Unable to use traditional remedies like monetary or fiscal policy stimulus, policymakers may consider automatic fiscal stabilisers. This column examines the impact of automatic stabilisers through social insurance on the business cycle, and how its impact can be used to mitigate recession. Unemployment insurance or food stamps would be better than progressive taxes at stimulating aggregate demand. The main economic channels policymakers must consider are those related to risk and precautionary savings.

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