Abstract :
Between2007and2009,governmentexpendituresincreasedrapidlyacrosstheOECD
countries.Whileeconomicresearchontheimpactofgovernmentpurchaseshas
flourished,inthedata,mostoftheincreaseinexpenditureswasingovernmenttransfers.
After documentingthisfact,wearguethatfutureresearchshouldfocusonthepositive
impactoftransfers.Towardsthis,wepresentamodelinwhichthereisnorepresentative
agentandRicardianequivalencedoesnotholdbecauseofuncertainty,imperfectcredit
markets,andnominalrigidities.Targetedlump-sumtransfersareexpansionaryboth
becauseofaneoclassicalwealtheffectandbecauseofaKeynesianaggregatedemand
effect.
