Built-in stabilizers are automatic fiscal adjustments that reduce the national income multiplier and thus cushion the effect of changes in autonomous spending on the level of income. Suppose the multiplier is 1/(1 – c) in an economy with no tax or with a lump sum tax, where c is the marginal propensity to consume. With a proportional income tax, t, the multiplier is reduced to 1/c(1–c(1–t)].
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