2011/02/01 by Hyunseung Oh, Ricardo Reis · 1 citation
Economics, Econometrics and Finance · #Fiscal Policy and Economic Growth #Fiscal Policies and Political Economy #Monetary Policy and Economic Impact #Economics #Ricardian equivalence #Government spending #Government (linguistics) #Aggregate demand #Imperfect #Monetary economics #Recession #Great recession #Fiscal policy #Macroeconomics #Keynesian economics #Monetary policy #Market economy
paper · pdf · doi:10.3386/w16775
openalex publication_date 2011/02/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/04
Between 2007 and 2009, government expenditures increased rapidly across the OECD countries. While economic research on the impact of government purchases has flourished, in the data, about three quarters of the increase in expenditures in the United States (and more in other countries) was in government transfers. We document this fact, and show that the increase in U.S. spending on retirement, disability, and medical care has been as high as the increase in government purchases. We argue that future research should focus on the positive impact of transfers. Towards this, we present a model in which there is no representative agent and Ricardian equivalence does not hold because of uncertainty, imperfect credit markets, and nominal rigidities. Targeted lump-sum transfers are expansionary both because of a neoclassical wealth effect and because of a Keynesian aggregate demand effect.