Which of the following is an example of an automatic stabilizer?

An automatic stabilizer is a feature of fiscal policy that helps to soften the impact of economic fluctuations without requiring explicit government intervention. Corporate taxes are considered an automatic stabilizer because they fluctuate with the level of corporate profits. During economic downturns, when corporate profits are lower, the amount of tax revenue collected decreases, which can help to cushion the economy by allowing more capital to remain with businesses. This can promote investment and job preservation during tough times.

Conversely, during periods of economic expansion, when corporate profits rise, tax revenues increase automatically without needing any new legislation or action from lawmakers, helping to cool down an overheating economy. This inherent responsiveness of corporate tax revenue to economic conditions classifies it as an automatic stabilizer, allowing it to play a role in stabilizing economic cycles.