Discretionary vs nondiscretionary in fiscal mechanism. Non-automatic fiscal stabilisers vs automatic fiscal stabilisers

TL;DR

This paper analyzes the differences between discretionary and automatic fiscal stabilizers, proposing a quantitative model to distinguish and evaluate their roles in macroeconomic stabilization.

Contribution

It introduces a formal quantitative framework to differentiate discretionary from automatic fiscal stabilizers and explores conditions under which stabilizers become automatic.

Findings

Quantitative measures for fiscal stabilizer characteristics.

A mathematical model for automatic stabilizer conditions.

Qualitative analysis of factors influencing stabilizer automaticity.

Abstract

The goal of the present study is to increase the intelligibility of macroeconomic phenomena triggered by governmental intervention in economy by means of fiscal policies. During cyclical movements, fiscal policy can play an important role in order to help stabilise the economy. But discretionary policy usually implies implementation lags and is not automatically reversed when economic conditions change. In contrast, automatic fiscal stabilisers (SFA) ensure a prompter, and self-correcting fiscal response. The present study aims to tackle the topic of discretionary vs nondiscretionary characteristic of fiscal stabilisers (SF). In this context, the scope of the research undertaking is to launch a scientific debate over the definitions of the concepts of non-automatic fiscal stabilisers (SfnA) and SFAs. We describe how we can quantify the discretionary and non-discretionary character of the fiscal policy, by the analysis of the structure of the conventional budget balance (SBc), budget balance associated with the current GDP. In the final part of this article, we propose a quantitative equilibrium model for establishing the mathematical prerequisites for an SF to become automatic. Likewise, on the basis of the proposed mathematical model we have performed a qualitative analysis of the influence factors.