E-mail alert  |  Contact  
Search:       Go  
Background  |   Sponsoring institutions  |   Editorial board   |   Advisory board   |   Associate editors
Call for papers  |   Submission guidelines  |   Editorial process
Current issue  |   Past issues  |  
March 2018 issue
List of authors
 
Mehrotra
Tölö, Laakkonen, Kalatie
Chiu, Hill
Belongia, Ireland
Fornero, Kirchner
Rose, Spiegel
Abbritti, Dell’Erba, Moreno, Sola
Ihrig, Klee, Li, Wei, Kachovec
IJCB Home   Read the journal   Past issue
Past issues
2018
 
June
March
January
2017
 
December
September
June
March
February
2016
 
December
September
June
March
2015
 
December
September
June
March
January
2014
 
December
September
June
March
2013
 
December
September
June
March
January
2012
 
December
September
June
March
January
2011
 
December
September
June
March
2010
 
December
September
June
March
2009
 
December
September
June
March
2008
 
December
September
June
March
2007
 
December
September
June
March
2006
 
December
September
June
March
2005
 
December
September
May

Fiscal Policy Stabilization: Purchases or Transfers?

by Neil R. Mehrotra
Federal Reserve Bank of Minneapolis

Abstract

Both government purchases and transfers figure prominently in the use of fiscal policy for counteracting recessions. However, existing representative-agent models including the neoclassical and New Keynesian benchmark rule out transfers by assumption. This paper explains the factors that determine the size of fiscal multipliers in a variant of the Cúrdia and Woodford (2010) model where transfers now matter. I establish an equivalence between deficit-financed fiscal policy and balanced-budget fiscal policy with transfers. Absent wealth effects on labor supply, the transfer multiplier is zero when prices are flexible, and transfers are redundant to monetary policy when prices are sticky. The transfer multiplier is most relevant at the zero lower bound where the size of the multiplier is increasing in the debt elasticity of the credit spread and fiscal policy can influence the duration of a zero lower bound episode. These results are quantitatively unchanged after incorporating wealth effects on labor supply.

JEL Code: E62.

 
Full article (PDF, 49 pages, 1041 kb)

Online appendix