The Automatic Stabilizers are a set of revenue and expenditure policies designed to counter the ups and downs of the business cycle. When recession hits, taxes increase and government spending on unemployment benefits goes up. These actions help keep demand for goods and services high even when private demand falls. When the economy recovers, tax revenues rise again while government expenditures go down.A recession is usually accompanied by an increase in unemployment, which has two main implications for public finance: Firstly, there is a decrease in income tax revenues with an increase in social security expenditure; secondly, there is a greater demand for public goods such as education or healthcare. The automatic stabilizers are budget rules that automatically trigger counter cyclical measures when specific triggers are hit.
