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Journal of Undergraduate Research

Keywords

growth, government transfers, unemployment benefits, OECD

College

Family, Home, and Social Sciences

Department

Economics

Abstract

Government transfers to households take many forms, including unemployment benefits, food stamps, social security, and cash handouts to households to stimulate consumption. Generally, these transfer programs act as “automatic stabilizers” due to the way they naturally increase (decrease) when economies are weak (strong). Often policy-makers suggest increasing these programs beyond their natural expansion during economic down-turns to bolster consumption. For example, Australia spent around 80% of its stimulus funds in the form of government checks to eligible citizens (Kennedy, 2009). Borrowing the methodology of Alesina and Ardagna(2009), we show that although many assume a positive correlation between government transfers and growth, empirically this is not so. Using OECD data for 30 developed countries from 1970 to present, we find a strong negative correlation between an increase in government transfers and growth in the following years.

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Economics Commons

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