August, 2015 | The Economics Classroom

Automatic Stabilizers in Fiscal Policy

Fiscal policy takes two distinct forms: that which requires legislation to enact, and that which kicks in automatically when there is a change in the level of income in a country.

This lesson distinguishes between discretionary fiscal policy and automatic stabilizers in fiscal policy, and examines the mitigating effect of automatic fiscal policy in an AD/AS diagram.

Different Tax Systems’ Effects on Income Distribution (part 1)

There are two things in life that are guaranteed: Death and… taxes. But how a tax affects individuals and society depends on the tax system in place in a particular country. Three tax systems exist, often alongside one another, in different countries and to varying degrees. These are:

  • Progressive income taxes
  • Proportional income taxes
  • Regressive Consumption taxes

This video will outline the different effects of the three tax systems on three hypothetical individuals earning different levels of income.

Part one shows how to calculate the amount of tax paid and the average tax rates under a progressive marginal income tax system and a proportional tax system.

Part 2 will calculate the amount of tax paid and the average tax rates on three individuals under a consumption tax system and explore the impact of the three different tax systems on a nation’s income distribution using a Lorenz curve.

In the second part of this lesson we will calculate the impact of consumption taxes on the amount of tax paid and the average tax rate of three hypothetical individuals. We will then compare the three tax systems (progressive marginal income taxes, proportional income taxes and consumption taxes) on a country’s income distribution using a Lorenz curve.