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By G. K. Shaw (auth.)

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Often, the regions involved will be those where administrative action is most feasible and not those most in need of fiscal stimulus. In contrast, a transfer payment, as for example unemployment compensation, will concentrate its impact upon regions of heavy unemployment. The inherent tendency for an automatic stabiliser to exert a selective regional impact is one argument in favour of such devices. If tax and transfer changes are more effective than direct 42 expenditure changes in circumventing the various time-lags involved, it is natural for the fiscal authorities to concentrate upon the former when dealing with short-term stabilisation goals [18].

The most important automatic stabilisers are the personal income tax and the corporate income tax, primarily because the tax base responds significantly to changing income levels. The corporate income tax is especially important as an automatic stabiliser if investment is assumed to be responsive to the size of retained earnings. On the expenditure side, unemployment compensation is obviously relevant and it may well be that the degree of automatic stabilisation could be improved considerably if such compensation were extended both in scope and period of eligibility.

G. It will be noted that [ 1-b ]/ d 1 - b + bt -t db = (1 - b + bt) 2 < 0 which implies that when income taxes are introduced into the analysis, the balanced budget multiplier is greater the lower the value of the marginal propensity to consume. This latter consideration provides some justification for balanced budget fiscal changes in the wake of those critics who have challenged the potency of fiscal measures on the ground that the marginal propensity to consume out of recorded disposable income is decidedly low.

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