When is the government transfer multiplier large ?

Eric Giambattista and Steven Michael Pennings

No 8184, Policy Research Working Paper Series from The World Bank

Abstract: Transfers to individuals were a larger part of the 2009 U.S. stimulus package than government purchases. Using a two-agent New Keynesian model, this paper shows analytically that the multiplier on targeted transfers to financially constrained households is (i) larger than the purchase multiplier if the zero lower bound (ZLB) binds, and (ii) is more sensitive to the degree of monetary accommodation of inflation. Targeted transfers provide the same boost to demand as purchases, but lower aggregate supply relative to purchases, as those receiving transfers want to work less. When the aggregate demand curve inverts, such as when the zero lower bound binds, the extra inflation from lower supply boosts the multiplier. This result also holds quantitatively in a medium-scale version of the model.

Keywords: Public Finance Decentralization and Poverty Reduction; Macro-Fiscal Policy; Public Sector Economics; Economic Adjustment and Lending (search for similar items in EconPapers)
Date: 2017-09-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

Downloads: (external link)
http://documents.worldbank.org/curated/en/786831504723306335/pdf/WPS8184.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:8184

Access Statistics for this paper

More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC.
Bibliographic data for series maintained by Roula I. Yazigi ().