Question

Automatic stabilizers lead to changes in taxation and government spending as economic output varies. How do automatic stabilizers impact tax revenue and government spending during a recession

Answer 1

When there's a recession, tax revenue falls.

A recession is usually associated with lower income so the tax paid falls.

For example, if income before recession was $500,000 And tax rate was 20%. The tax paid would be $100,000.

Now there's a recession and income falls to $200,000. Tax paid would be $40,0000.

Tax rate fell from $100,000 to $40,000

Step-by-step explanation:

Automatic stabilizers adjust fluctuations in the economy automatically without the intervention of the government or policy makers.

Examples of automatic stabilizers are :

Progressive tax

Transfer payments

I hope my answer helps you