The fundamental differences between discretionary and automatic stabilizers lie in the timing of the implementation and ways of achieving particular objectives. In this regard, discretionary stabilizers involve macroeconomic policies basing on the judgment of the decision makers at a given moment as opposed to the policies set by former rules. It follows that discretionary policy would not follow preexisting rules strictly. In this regard, the discretionary stabilizers are reactionary i.e. responds to changes in the economy. For instance, the government can create a job drive for its citizens.
Moreover, the subjective judgment of the policy makers is an essential aspect of discretionary stabilizers and may have political interference (Fatas and Mihov, n.d). The formulators of the policies treat each of the issues as unique. In its nature, the discretionary approach has a significant time lag before the implementation of the policies, and realization of the results. The discretionary policies can address broad aspects of the economy as opposed to automatic stabilizers.
On the other hand, automatic stabilizers set in when the economy begins to experience fluctuations. They can increase or decrease budget deficits during booms or recession. The automatic stabilizers set in automatically without initiation by government officials. As a result, they enact countercyclical policy without time lag associated with formulation and implementation of policies. Moreover, the automatic stabilizers are narrow in that they focus on handling issues related to aggregate demand of the country. Further, automatic stabilizer follows preexisting rules and, therefore, are not reactionary. Examples of automatic stabilizers include progressive income taxes and corporate profits.
Notwithstanding the above differences, both automatic and discretionary stabilizers aims at mitigating fluctuations in the real GDP of a country. It is the means, timeframe, and particular objectives of achieving stability of the economy that makes them different.
Reference
Fatas, A., and Mihov, I., (n.d). Fiscal Policy as a Stabilization Tool. PDF File. Retrieved on March 22, 2016 from http://faculty.insead.edu/fatas/fiscal_stabilization.pdf
