The Macroeconomic Effects of Cash Transfers: Evidence from Brazil

Feler, Leo; Mendes, Arthur; Miyamoto, Wataru; Nguyen, Thuy Lan; Pennings, Steven

doi:10.24148/wp2024-02

Working Paper

The Macroeconomic Effects of Cash Transfers: Evidence from Brazil

Abstract: This paper provides new evidence on the macroeconomic impact of cash transfers in developing countries. Using a Bartik-style identification strategy, the paper documents that Brazil’s Bolsa Familia transfer program leads to a large and persistent increase in relative state-level GDP, formal employment, and informal employment. A state receiving 1% of GDP in extra transfers grows 2.2% faster in the first year, with R$100,000 of extra transfers generating five formal-equivalent jobs, half of which are informal. Consistent with a demand-side mechanism, the effects are concentrated in non-tradable sectors. However, an open-economy New Keynesian model only partially captures the high multipliers estimated.

Keywords: fiscal multipliers; cash transfers; Bartik instrument; Bolsa Familia; informality; relative multiplier; local multiplier; developing countries;

JEL Classification: E0; E26; E32; O54;

https://doi.org/10.24148/wp2024-02