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Taxes work as an automatic stabilizer by increasing disposable income in downturns and decreasing disposable income during booms.
During recessions, automatic stabilizers play a crucial role particularly for lower-income households because they boost benefits or decrease tax bills as income declines.
Automatic stabilizers include taxessuch as the individual income tax, where taxpayers owe less as their income declinesas well as benefit programssuch as unemployment insurance, where more people become eligible during economic downturns.
The best-known automatic stabilizers are progressively graduated corporate and personal income taxes, and transfer systems such as unemployment insurance and welfare. Automatic stabilizers are called this because they act to stabilize economic cycles and are automatically triggered without additional government action.
Automatic stabilizers are features of the tax and transfer systems that temper the economy when it overheats and stimulate the economy when it slumps, without direct intervention by policymakers. Automatic stabilizers offset fluctuations in economic activity without direct intervention by policymakers.

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Automatic stabilizers are any part of the government budget that offsets fluctuations in aggregate demand. They offset fluctuations in demand by reducing taxes and increasing government spending during a recession, and they do the opposite in expansion.
Automatic stabilizers include unemployment insurance, food stamps, and the personal and corporate income tax. Suppose aggregate demand were to fall sharply so that a recession occurred.
A progressive income tax system is particularly effective as an automatic stabilizer because: In a booming economy, taxpayers move into higher tax brackets, which restrains their spending.

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