The Macroeconomic Effects of Cash Transfers: Evidence from Brazil

Arthur Galego Mendes, Wataru Miyamoto, Thuy Lan Nguyen, Steven Michael Pennings and Leo Feler

No 10652, Policy Research Working Paper Series from The World Bank

Abstract: This paper estimates the macroeconomic effects of Brazil's Bolsa Familia cash transfer program on state-level GDP and employment. Using a Bartik identification strategy over 2004–2019, the analysis finds a large and persistent relative multiplier: a state receiving extra transfers worth 1% of GDP grows 2–3 percentage points more than others, with effects concentrated in non-tradable sectors. Informal employment increases significantly while formal employment does not, leaving total employment little changed. The large GDP multiplier therefore reflects higher labor productivity. An open-economy New Keynesian model with no wealth effects on labor supply matches the GDP multiplier but misses the employment impacts.

Date: 2023-12-19
New Economics Papers: this item is included in nep-dge and nep-iue
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