Automatic stabilisers are government fiscal systems that help balance the economy without requiring new laws or direct action from policymakers.

They function naturally through the existing tax and benefit systems:

• During economic growth: People earn more, so tax payments rise. Simultaneously, fewer people need government assistance, so welfare spending falls. This helps prevent the economy from overheating.
• During a recession: Tax payments decrease because income is lower. At the same time, government spending on unemployment benefits rises. This puts more money into the hands of consumers, which supports aggregate demand.

Common examples include progressive taxation and unemployment benefits. These mechanisms are considered ‘automatic’ because they respond instantly to economic changes without the need for new government decisions.