Automatic fiscal stabilisers are built-in features of public finances that cushion the economy as conditions change. When economic activity weakens, tax payments usually fall and transfers to households may rise, supporting incomes without a new government decision. When growth is strong, tax receipts tend to increase and some transfers decline, which helps prevent the economy from overheating. These built-in responses soften swings in output and employment and differ from measures that require the government to enact a new tax or spending policy.
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Source: European Central Bank (ECB) (source). This glossary entry is an independently worded adaptation of the cited information.