Slackness, Openness, and the Anatomy of Cash Transfer Multipliers

Minki Kim () and Mitchell VanVuren ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: This paper develops a general equilibrium macroeconomic model to rationalize why large-scale cash transfers in low-income settings generate high multipliers with little price inflation. We provide two mechanisms, slackness in local production and openness to external trade, and show they have distinct policy implications. We esti mate the modelon baseline data from an ongoing large-scale cash-transfer experiment in Malawi. The estimated economy lies on a slackness plateau where firms have sub stantial idle capacity, muting the price response and generating a local GDP multiplier of between 1.1 and 1.5. Within this regime, the welfare-maximizing transfer design spreads transfers across more villages rather than concentrating them at higher per household amounts. Our approach illustrates the value of pairing a structural model with an ongoing field experiment.

Keywords: Cash Transfer; Slackness; Openness; Fiscal Multiplier (search for similar items in EconPapers)
JEL-codes: E0 O1 (search for similar items in EconPapers)
Pages: 43
Date: 2026-06
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