Economics at your fingertips  

When is the government transfer multiplier large?

Eric Giambattista and Steven Pennings

European Economic Review, 2017, vol. 100, issue C, 525-543

Abstract: Transfers to individuals were a larger part of the 2009 US stimulus package than government purchases. Using a two-agent New Keynesian model, we show 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 ZLB binds — the extra inflation from lower supply boosts the multiplier. We show this result also holds quantitatively in a medium-scale version of the model.

Keywords: Fiscal transfers; Fiscal policy; Fiscal stimulus; Government spending; Multipliers; New-Keynesian models; Zero lower Bound; Monetary policy (search for similar items in EconPapers)
JEL-codes: E63 E62 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

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:

DOI: 10.1016/j.euroecorev.2017.09.003

Access Statistics for this article

European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

More articles in European Economic Review from Elsevier
Bibliographic data for series maintained by Nithya Sathishkumar ().

Page updated 2021-03-09
Handle: RePEc:eee:eecrev:v:100:y:2017:i:c:p:525-543