Social transfer multipliers in developed and emerging countries: The role of hand-to-mouth consumers

This paper estimates the macroeconomic effects of social transfer payments to individuals. While the size of the social transfer multiplier (STM) is 0.35 in developed countries, it is 0.95 in Latin American countries. We study the role of agents with no access to financial markets; i.e. Hand-to-Mouth (HtM) consumers, as first order factor to explain the heterogeneity on the size of social transfer multipliers (STM) across emerging and developed countries. Using survey-based micro data, we document that the average share of the population living hand-to-mouth in developed economies is 23%, versus 60% in Latin American countries.  A two agent New Keynesian model disciplined to match the share of HtMs across countries is able to explain 80-90% of the difference in STM.