Using the TAXSIM model for the period 1962-95, we consider the federal tax system's
impact as an automatic stabilizer. Despite the many changes in the tax system, there
has been relatively little change in its role as an automatic stabilizer. We estimate
that individual federal taxes offset perhaps as much as 8 percent of initial shocks
to GDP. We also suggest that the progressive income tax may help to stabilize output
via its effect on the supply of labor, an additional effect that may even be of similar
magnitude to the more traditional path of stabilization through aggregate demand.