Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212999 
Year of Publication: 
2019
Series/Report no.: 
BoF Economics Review No. 6/2019
Publisher: 
Bank of Finland, Helsinki
Abstract: 
The debate about the use of fiscal instruments for macroeconomic stabilization has regained prominence in the aftermath of the Great Recession, and the experience of a monetary union equipped with fiscal shock absorbers, such as the United States, has often been a reference. This paper enhances our knowledge about the degree of macroeconomic stabilization achieved in the United States through the federal budget, providing a detailed breakdown of the different channels. In particular, we investigate the relative importance and stabilization impact of the federal system of unemployment benefits and of its extension as a response to the Great Recession. The analysis shows that in the United States, corporate income taxes collected at the federal level are the single-most efficient instrument for providing stabilization, given that even with a smaller size than other instruments they can provide important effects, mainly against common shocks. On the other hand, Social Security benefits and personal income taxes have a greater role in stabilizing asymmetric shocks. A federal system of unemployment insurance, then, can play an important stabilization role, in particular when enhanced by a discretionary program of extended benefits in the event of a large shock, like the Great Recession.
Subjects: 
Monetary Union
Macroeconomic Stabilization
Fiscal Policy
Monetary Policy
JEL: 
E63
F36
F41
F45
Persistent Identifier of the first edition: 
Document Type: 
Research Report

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