When Is the Government Transfer Multiplier Large?

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 lo...

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Main Authors: Giambattista, Eric, Pennings, Steven
Format: Journal Article
Published: Elsevier 2018
Subjects:
Online Access:http://hdl.handle.net/10986/29203
id okr-10986-29203
recordtype oai_dc
spelling okr-10986-292032021-05-25T10:54:43Z When Is the Government Transfer Multiplier Large? Giambattista, Eric Pennings, Steven FISCAL TRANSFERS FISCAL POLICY FISCAL STIMULUS GOVERNMENT SPENDING MULTIPLIERS NEW-KEYNESIAN MODEL ZERO LOWER BOUND MONETARY POLICY 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. 2018-01-22T16:11:41Z 2018-01-22T16:11:41Z 2017-11 Journal Article European Economic Review 0114-2921 http://hdl.handle.net/10986/29203 CC BY-NC-ND 3.0 IGO http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Elsevier Publications & Research :: Journal Article Publications & Research United States
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
topic FISCAL TRANSFERS
FISCAL POLICY
FISCAL STIMULUS
GOVERNMENT SPENDING
MULTIPLIERS
NEW-KEYNESIAN MODEL
ZERO LOWER BOUND
MONETARY POLICY
spellingShingle FISCAL TRANSFERS
FISCAL POLICY
FISCAL STIMULUS
GOVERNMENT SPENDING
MULTIPLIERS
NEW-KEYNESIAN MODEL
ZERO LOWER BOUND
MONETARY POLICY
Giambattista, Eric
Pennings, Steven
When Is the Government Transfer Multiplier Large?
geographic_facet United States
description 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.
format Journal Article
author Giambattista, Eric
Pennings, Steven
author_facet Giambattista, Eric
Pennings, Steven
author_sort Giambattista, Eric
title When Is the Government Transfer Multiplier Large?
title_short When Is the Government Transfer Multiplier Large?
title_full When Is the Government Transfer Multiplier Large?
title_fullStr When Is the Government Transfer Multiplier Large?
title_full_unstemmed When Is the Government Transfer Multiplier Large?
title_sort when is the government transfer multiplier large?
publisher Elsevier
publishDate 2018
url http://hdl.handle.net/10986/29203
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