Automatic Stabilizer

Posted in Finance, Accounting and Economics Terms, Total Reads: 262

Definition: Automatic Stabilizer

Automatic Stabilizer is a concept in economics which refers to policies and structures which are kept in place and are activated on their own during economic recession or other issues without the need of any government intervention.

Examples are corporate and personal taxes, and transfer systems such as unemployment insurance and welfare.

In case of Income tax the taxes are kept as percentage of income earned. So in case the income goes down during recession, the income tax automatically goes down. Similarly for companies, the taxes are calculated on profits. If profits go down taxes also go down. 

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