Automatic Stabilisers.

In macroeconomics automatic stabilisers work as a tool to

dampen fluctuations in real GDP without any explicit policy action
by the government. It is a government program that changes
automatically depending on GDP and a person’s income,[1] and
acts as a negative feedback loop on GDP.
The size of the government deficit tends to increase as a country
enters recession, which helps keep national income high through
the multiplier.
Furthermore, imports often tend to decrease in a recession,
meaning more of the national income is spent at home rather than
abroad. This also helps stabilise the economy.
Induced taxes
Government tax revenue tends to fall as a proportion of national
income during recessions.
This occurs because of the way tax systems are generally
constructed.

 Income tax is generally at least somewhat progressive. If an

individual's income rises, then their average tax rateincreases.
This means that as incomes fall, households pay less as a
proportion of their income in direct taxation.
 Corporation tax is generally based on profits, rather
than turnover. In a recession profits tend to fall much faster than
turnover. Therefore, a corporation pays much less tax while
having only slightly less economic activity.

If national income rises, by contrast, then both households and

corporations end up paying higher proportions of their income in
tax.
This means that in an economic boom tax revenue is higher and in
a recession tax revenue lower; not only in absolute terms but as a
proportion of national income.
Other forms of tax do not exhibit these effects, because they are
roughly proportionate to income (e.g. taxes on consumption
like sales tax or value added tax, or they bear no relation to income
(e.g. poll tax or property tax).

Transfer payments
Most governments also pay unemployment and welfare benefits.
Generally speaking, the number of unemployed people and those
on low incomes who are entitled to other benefits increases in a
recession and decreases in a boom.
This means that government expenditure increases automatically
in recessions and decreases automatically in a boomin absolute
terms. Since the trend of output is to increase in booms and
decrease in recessions, expenditure is expected to increase as a
share of income in recessions and decrease as a share of income
in booms.

When stabilisers don't work

There is broad consensus amongst economists that the automatic
stabilisers often exist and function in the short term.
However, the automatic stabilisers model does not
incorporate rational expectations or other microfoundations. No
part of economics is in the final analysis a mechanistic process and
the existence of the stabilisers can easily be overshadowed by
other changes to policy, expectations or markets.

Automatic stabilisers incorporated into the expenditure

multiplier

This section incorporates automatic stabilisation into a

broadly Keynesian multiplier model.
  MPC = Marginal propensity to consume
 T = Induced taxes
 MPI = Marginal Propensity to Import

Holding all other things constant, ceteris paribus, the greater the
level of taxes, or the greater the MPI then the value of this
multiplier will drop. For example, lets assume that:
→ MPC = 0.8
→T=0
→ MPI = 0.2
Here we have an economy with zero marginal taxes and zero
transfer payments. If these figures were substituted into the
multiplier formula, the resulting figure would be 2.5. This figure
would give us the instance where a (for instance) $1 billion change
in expenditure would lead to a $2.5 billion change in equilibrium
real GDP.
Lets now take an economy where there are positive
taxes (an increase from 0 to 0.2), while the MPC and
MPI remain the same:
→ MPC = 0.8
→ T = 0.2
→ MPI = 0.2
If these figures were now substituted into the multiplier formula, the
resulting figure would be 1.79. This figure would give us the
instance where, again, a $1 billion change in expenditure would
now lead to only a $1.79 billion change in equilibrium real GDP.
This example shows us how the multiplier is lessened by the
existence of an automatic stabiliser, and thus helping to lessen the
fluctuations in real GDP as a result from changes in expenditure.
Not only does this example work with changes in T, it would also
work by changing the MPI while holding MPC and T constant as
well.