Targeted transfers and the fiscal response to the great recession

Hyunseung Oh
Authors registered in the RePEc Author Service: Ricardo Reis

No 8239, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Between 2007 and 2009, government expenditures increased rapidly across the OECD countries. While economic research on the impact of government purchases has flourished, in the data, about three quarters of the increase in expenditures in the United States (and more in other countries) was in government transfers. We document this fact, and show that the increase in U.S. spending on retirement, disability, and medical care has been as high as the increase in government purchases. We argue that future research should focus on the positive impact of transfers. Towards this, we present a model in which there is no representative agent and Ricardian equivalence does not hold because of uncertainty, imperfect credit markets, and nominal rigidities. Targeted lump-sum transfers are expansionary both because of a neoclassical wealth effect and because of a Keynesian aggregate demand effect.

Keywords: Fiscal policy; Incomplete markets; Nominal rigidities (search for similar items in EconPapers)
JEL-codes: E62 H31 H50 (search for similar items in EconPapers)
Date: 2011-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (58)

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Related works:
Journal Article: Targeted transfers and the fiscal response to the great recession (2012)
Working Paper: Targeted Transfers and the Fiscal Response to the Great Recession (2011)
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