It’s worth noting that the fiscal multiplier in the GE cash transfer study has a point estimate of 2.4, but their confidence intervals are wide and they can’t reject that the fiscal multiplier is 1 (ie no positive spillovers). The study is also puzzling in finding no effects on prices even though the local money supply increases dramatically. The authors do not have a clear explanation for why there is no price increase from cash transfers, and I think we should have a pretty skeptical prior about that result; if we do then we might conclude that our best guess of the welfare from large scale cash transfers is much lower than estimated in that study.
Thanks for this thoughtful post Carolina! I would second Karthik’s note here—I think there have also been a few other GE studies which show contradictory results, so it’s not clear that the spillover effects would be positive once inflation and exchange rates effects are taken into account. Others have also raised concerns about possible negative pyschological spillovers, though from memory I think GiveDirectly typically provides cash to everyone in a village, which may mitigate this issue.
It’s worth noting that the fiscal multiplier in the GE cash transfer study has a point estimate of 2.4, but their confidence intervals are wide and they can’t reject that the fiscal multiplier is 1 (ie no positive spillovers). The study is also puzzling in finding no effects on prices even though the local money supply increases dramatically. The authors do not have a clear explanation for why there is no price increase from cash transfers, and I think we should have a pretty skeptical prior about that result; if we do then we might conclude that our best guess of the welfare from large scale cash transfers is much lower than estimated in that study.
Thanks for this thoughtful post Carolina! I would second Karthik’s note here—I think there have also been a few other GE studies which show contradictory results, so it’s not clear that the spillover effects would be positive once inflation and exchange rates effects are taken into account. Others have also raised concerns about possible negative pyschological spillovers, though from memory I think GiveDirectly typically provides cash to everyone in a village, which may mitigate this issue.