What is the impact of tax and welfare reforms on fiscal stabilizers?

Taxation inevitably impinges on most aspects of economic activity, and thus careful consideration must be given to its design—in addition to its level and hence the level of related expenditure. So long as taxation affects incentives, it may alter economic behavior of consumers, producers or workers in ways that reduce the amount or utilization of physical, human and knowledge capital, and thus growth. Therefore, to the extent the tax system matters for economic efficiency its costs are likely to rise with the level of taxation. The widespread perception that in many European countries, the tax burden is too high and the tax system unduly distortive has led to calls for tax reforms. Empirical research suggests that a cut in the tax share in GDP by 1 percentage point raises output per working-age person in the long run by 0.6–0.7 percent (OECD 2000).