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Joint Estimates Of Automatic And Discretionary Fiscal Policy For The OECD

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Executive Summary

Official calculations of automatic stabilizers are seriously flawed since they rest on the assumption that the only element of social spending that reacts automatically to the cycle is unemployment compensation. This puts into question many estimates of discretionary fiscal policy. In response, the authors propose a simultaneous estimate of automatic and discretionary fiscal policy. This leads them, quite naturally, to a tripartite decomposition of the budget balance between revenues, social spending and other spending as a bare minimum.

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