Abstract

This paper provides new evidence on the macroeconomic impact of cash transfers in devel- oping countries. Using a Bartik-style identification strategy, we document that Brazil’s Bolsa Familia transfer program leads to a large, significant 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 short-to-medium term, with R$100,000 of extra transfers gen- erating five formal-equivalent jobs, half of which are informal. Consistent with a demand-side mechanism, effects are concentrated in non-tradable sectors. However, an open-economy New Keynesian model can only partially capture the high multipliers estimated.

JEL classification: E0, E32, E26, E60, E62, O54.

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