Automatic stabilizer

In macroeconomics, automatic stabilizers are features of the structure of modern government budgets, particularly income taxes and welfare spending, that act to damp out fluctuations in real GDP.

This effect happens automatically depending on GDP and household income, without any explicit policy action by the government, and acts to reduce the severity of recessions.

[2] Similarly, the budget deficit tends to decrease during booms, which pulls back on aggregate demand.

Therefore, automatic stabilizers tend to reduce the size of the fluctuations in a country's GDP.

Tax revenues generally depend on household income and the pace of economic activity.

Generally speaking, the number of unemployed people and those on low incomes who are entitled to other benefits increases in a recession and decreases in a boom.

There is broad consensus among economists that automatic stabilizers often exist and function in the short term.

Additionally, imports often tend to decrease in a recession, meaning more of the national income is spent at home rather than abroad.