Andrew Watt

Strengthening the automatic stabilisers in Europe: Why, what and how

24 pages · 4.98 EUR
(October 2011)

I agree with the terms and conditions, especially point 10 (only private use, no transmission to third party)

From the introduction:

Andrew Watt, in his contribution agrees that one of the key lessons of the crisis is that, under certain conditions, the macroeconomy needs an active stabilisation policy. Yet, in the pre-crisis consensus view, discretionary fiscal policy with the aim of managing demand was considered at best ineffective and more usually harmful. On the other hand, as Watt emphasises, the role of the automatic stabilisers was generally recognised and welcomed, as their automaticity was seen as a great virtue in ensuring appropriate timing of fiscal boosts and demand withdrawals and of avoiding a deficit bias. Watt recalls that their stabilising role was praised in the depths of the crisis. Since then, however, not only have they been forgotten, but the massive austerity packages now sweeping across Europe with their focus on reducing the size of the public sector generally, and particularly institutions with an anti-cyclical impact (notably unemployment benefits), threaten to leave Europe with a weaker rather than stronger ability to self-stabilise. In the light of this discussion, Watt sets out the arguments for strengthening the automatic stabilisers in Europe. He stresses that his proposal requires no treaty revision or major institutional innovation. Moreover, although limited in nature and respecting the autonomy of national governments and social preferences of electorates, it goes some way to internalising the positive externalities of national policies that strengthen the automatic stabilisers and mitigates an important collective action problem. The proposal would help avert and possibly reverse negative trends such as unfair tax competition.