Publication: Social Transfer Multipliers in Developed and Emerging Countries: The Role of Hand-to-Mouth Consumers
Loading...
Published
2021-04
ISSN
Date
2021-04-19
Author(s)
Editor(s)
Abstract
This paper estimates the macroeconomic effects of social transfer payments to individuals for a sample of 23 developed and Latin American countries. The findings show that the social transfer multiplier is 0.3 in developed countries, but 0.9 in Latin American economies. The paper studies the role of hand-to-mouth consumers, who have no access to financial markets and a high marginal propensity to consume, as a first order factor to explain the heterogeneity in the size of social transfer multipliers. Using survey-based data from the Global Findex dataset, the paper finds that the average share of the population living hand-to-mouth is 23 percent in developed economies versus 60 percent in Latin American countries. This evidence is interpreted with a two-agent New Keynesian model. The findings show that the difference in the share of hand-to-mouth consumers explains 80 to 90 percent of the difference in the estimated social transfer multipliers. The paper also documents that the share of hand-to-mouth individuals in emerging countries is in general 47 percent which suggests that a larger social transfer multiplier may be expected for this type of economy.
Link to Data Set
Citation
“Bracco, Jessica; Galeano, Luciana; Juarros, Pedro; Riera-Crichton, Daniel; Vuletin, Guillermo. 2021. Social Transfer Multipliers in Developed and Emerging Countries: The Role of Hand-to-Mouth Consumers. Policy Research Working Paper;No. 9627. © World Bank. http://hdl.handle.net/10986/35450 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Publication The Economic Value of Weather Forecasts: A Quantitative Systematic Literature Review(Washington, DC: World Bank, 2025-09-10)This study systematically reviews the literature that quantifies the economic benefits of weather observations and forecasts in four weather-dependent economic sectors: agriculture, energy, transport, and disaster-risk management. The review covers 175 peer-reviewed journal articles and 15 policy reports. Findings show that the literature is concentrated in high-income countries and most studies use theoretical models, followed by observational and then experimental research designs. Forecast horizons studied, meteorological variables and services, and monetization techniques vary markedly by sector. Estimated benefits even within specific subsectors span several orders of magnitude and broad uncertainty ranges. An econometric meta-analysis suggests that theoretical studies and studies in richer countries tend to report significantly larger values. Barriers that hinder value realization are identified on both the provider and user sides, with inadequate relevance, weak dissemination, and limited ability to act recurring across sectors. Policy reports rely heavily on back-of-the-envelope or recursive benefit-transfer estimates, rather than on the methods and results of the peer-reviewed literature, revealing a science-to-policy gap. These findings suggest substantial socioeconomic potential of hydrometeorological services around the world, but also knowledge gaps that require more valuation studies focusing on low- and middle-income countries, addressing provider- and user-side barriers and employing rigorous empirical valuation methods to complement and validate theoretical models.Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication Rigging the Scores: Corruption through Scoring Rule Manipulation in Public Procurement Auctions(Washington, DC: World Bank, 2025-12-02)Public procurement is highly susceptible to corruption, especially in developing countries. Although open auctions are widely adopted to curb it, this paper finds that corruption remains prevalent even within this procurement format. Procurement officers can collaborate with firms to manipulate scoring rules, ensuring predetermined winners, while corrupt firms submit noncompetitive bids to meet minimum bidder requirements. Using extensive data from Chinese public procurement auctions, the paper introduces model-driven statistical tools to detect such corruption, identifying a corruption rate of 65 percent. A procurement expert audit survey confirms the tools’ reliability, with a 91 percent probability that experts recognize suspicious scoring rules when flagged. Firm-level analysis reveals that local, state-owned, and less productive firms are favored in corrupt auctions. Lastly, the paper explores policy implications. Analysis of the national anti-corruption campaign since 2012 suggests that general investigations may be insufficient to address deeply ingrained corrupt practices. Using counterfactuals based on an estimated structural model, the paper shows that implementing anonymous call-for-tender evaluations could improve social welfare by 10 percent by eliminating suspicious rules and encouraging broader participation.Publication Labor Demand in the Age of Generative AI: Early Evidence from the U.S. Job Posting Data(Washington, DC: World Bank, 2025-11-18)This paper examines the causal impact of generative artificial intelligence on U.S. labor demand using online job posting data. Exploiting ChatGPT’s release in November 2022 as an exogenous shock, the paper applies difference-in-differences and event study designs to estimate the job displacement effects of generative artificial intelligence. The identification strategy compares labor demand for occupations with high versus low artificial intelligence substitution vulnerability following ChatGPT’s launch, conditioning on similar generative artificial intelligence exposure levels to isolate substitution effects from complementary uses. The analysis uses 285 million job postings collected by Lightcast from the first quarter of 2018 to the second quarter of 2025Q2. The findings show that the number of postings for occupations with above-median artificial intelligence substitution scores fell by an average of 12 percent relative to those with below-median scores. The effect increased from 6 percent in the first year after the launch to 18 percent by the third year. Losses were particularly acute for entry-level positions that require neither advanced degrees (18 percent) nor extensive experience (20 percent), as well as those in administrative support (40 percent) and professional services (30 percent). Although generative artificial intelligence generates new occupations and enhances productivity, which may increase labor demand, early evidence suggests that some occupations may be less likely to be complemented by generative artificial intelligence than others.Publication Investment Policy Reforms and Foreign Direct Investment Inflows(Washington, DC: World Bank, 2025-12-01)Foreign direct investment has the potential to introduce much-needed capital and expertise in emerging and developing economies. To attract foreign direct investment, many countries have eased restrictions on foreign ownership in various sectors, reformed their institutions, and set up investment promotion agencies. Until the mid-2010s, Ethiopia remained one of the few countries that resisted this trend, with several stringent restrictions in place on foreign direct investment entry and operations in the country. This study employs a synthetic control method to examine patterns in foreign capital inflows following a series of investment policy reforms that were substantively introduced in the mid-2010s (circa 2015). The study offers evidence that investment policy reforms contributed to a significant foreign direct investment inflow in Ethiopia, compared to what would have occurred in the absence of these policies. An alternative strategy that conservatively specifies the donor country pool using an AI-assisted deep search technique changes the donor pool weighting matrix of the synthetic control method, but the estimated policy effects largely remain robust to this specification. The findings highlight the importance of targeted reforms in promoting foreign direct investment inflow in developing countries.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Effects of the Business Cycle on Social Indicators in Latin America and the Caribbean(Washington, DC: World Bank, 2019-04-04)After mediocre growth in 2018 of 0.7 percent. LAC is expected to perform only marginally better in 2019 (growth of 0.9 percent) followed by a much more solid growth of 2.1 percent in 2020. LAC will face both internal and external challenges during 2019. On the domestic front. the recession in Argentina; a slower than expected recovery in Brazil from the 2014-2015 recession, anemic growth in Mexico. and the continued deterioration of Venezuela. present the biggest challenges. On the external front. the sharp drop in net capital inflows to the region since early 2018 and the monetary policy normalization in the United States stand among the greatest perils. Furthermore, the recent increase in poverty in Brazil because of the recession points to the large effects that the business cycle may have on poverty. The core of this report argues that social indicators that are very sensitive to the business cycle may yield a highly misleading picture of permanent social gains in the region.Publication Fiscal Multipliers in Recessions and Expansions : Does It Matter Whether Government Spending Is Increasing or Decreasing?(World Bank Group, Washington, DC, 2014-07)Using non-linear methods, this paper finds that existing estimates of government spending multipliers in expansion and recession may yield biased results by ignoring whether government spending is increasing or decreasing. For industrial countries, the problem originates in the fact that, contrary to one's priors, it is not always the case that government spending is going up in recessions (i.e., acting countercyclically). In almost as many cases, government spending is actually going down (i.e., acting procyclically). Since the economy does not respond symmetrically to government spending increases or decreases, the "true" long-run multiplier for bad times (and government spending going up) turns out to be 2.3 compared to 1.3 if we just distinguish between recession and expansion. In the case of developing countries, the bias results from the fact that the multiplier for recessions and government spending going down (the "when-it-rains-it-pours" phenomenon) is larger than when government spending is going up.Publication Fooled by the Cycle(Washington, DC : World Bank, 2022-06)This paper studies the time series behavior of a set of widely-used social indicators and uncovers two important stylized facts. First, not all social indicators are created equal in terms of the importance of cyclical fluctuations. While some social indicators such as the unemployment rate and monetary poverty show large cyclical fluctuations, other social measures such as the Human Development Index are, by construction, dominated by long-run trends. Second, interestingly, yet not surprisingly, a large part of the cyclical fluctuations in social indicators can be explained by cyclical changes in income (proxied by real GDP per capita). For this reason, countries with large cyclical income volatility exhibit, in turn, large cyclical changes in some of these social indicators (particularly in those indicators that are more prone to cyclical fluctuations). Since cyclical income volatility is much larger in the developing world, these two critical stylized facts raise fundamental issues regarding the duration of improvements in social indicators (like the ones observed in many developing countries during the last commodity super-cycle). After a detailed conceptual and methodological discussion of these issues, and relying on a global sample of industrial and developing countries, this paper digs deeper into the importance of cyclical versus permanent components by extending the seminal contribution of Datt and Ravallion (1992). In particular, it shows that more than 40 percent of the fall in monetary poverty observed in Latin America and the Caribbean during the so-called Golden Decade can be attributed to cyclical changes in income. While in principle universal, these concerns are particularly relevant in the developing world where, compared to developed countries, output volatility is larger and driven, to a large extent, by external factors (such as commodity prices).Publication Public Spending Policies in Latin America and the Caribbean(Washington, DC: World Bank, 2024-08-07)In low- and middle-income economies, public spending policies diverge significantly from those of industrialized nations due to structural differences. Low- and middle-income economies often make long-term commitments based on short-term economic conditions, leading to mismatches between spending maturity and economic cycles. These mismatches can exacerbate fiscal imbalances and hinder economic growth by forcing compositional changes in public spending. "Public Spending Policies in Latin America and the Caribbean: When Cyclicality Meets Rigidities" describes significant cyclical behavior variations in low- and middle-income markets. Contrary to Keynesian principles, public spending in these economies tends to be procyclical during economic booms, driven by increased borrowing and political pressures to address social deficits, but policy makers are unable or unwilling to retrench during economic busts. This approach not only amplifies macroeconomic volatility but also plants the seeds for fiscal distress, which is typically addressed by diminishing the quantity and quality of public investment—with serious consequences for long-term growth. Labor market informality further complicates matters, rendering automatic stabilizers like unemployment insurance impractical. Instead, governments rely on public employment and social transfer programs, which are downwardly rigid and can contribute to the expansion of government size over time. Addressing these anomalies requires policy interventions beyond traditional recommendations. Implementing fiscal rules to restrain overspending during economic upturns, enhancing the efficiency of public goods provision, and establishing mechanisms to adjust social programs during economic fluctuations are suggested approaches. In addition, measures to protect public investment and mitigate biases against pension benefits could aid in fostering long-term economic sustainability and welfare improvement. Public Spending Policies in Latin America and the Caribbean will be of interest to policy makers, researchers, and anyone with an interest in developing mechanisms for helping low- and middle-income economies weather economic storms.Publication Policy Implications of Non-linear Effects of Tax Changes on Output(World Bank, Washington, DC, 2019-01)An earlier paper titled "Non-linear effects of tax changes on output: The role of the initial level of taxation," estimated tax multipliers using (i) a novel dataset on value-added taxes for 51 countries (21 industrial and 30 developing) for the period 1970-2014, and (ii) the so-called narrative approach developed by Romer and Romer (2010) to properly identify exogenous tax changes. The main finding is that, in line with existing theoretical distortionary and disincentive-based arguments, the effect of tax changes on output is highly non-linear. The tax multiplier is essentially zero under relatively low/moderate initial tax rate levels and more negative as the initial tax rate and the size of the change in the tax rate increase. This companion paper first shows that these findings have important policy implications, given that the initial level of taxes varies greatly across countries and thus so will the potential output effect of changing tax rates. The paper then turns to some specific policy applications. It focuses on the relevance of the arguments for revenue mobilization in countries with low levels of provision of public goods and social and infrastructure gaps, as well as in commodity-dependent countries. The paper then considers some practical implications for the standard debt sustainability analysis. Lastly, it evaluates the implications of the findings for the Laffer curve.
Users also downloaded
Showing related downloaded files
Publication Digital Progress and Trends Report 2023(Washington, DC: World Bank, 2024-03-05)Digitalization is the transformational opportunity of our time. The digital sector has become a powerhouse of innovation, economic growth, and job creation. Value added in the IT services sector grew at 8 percent annually during 2000–22, nearly twice as fast as the global economy. Employment growth in IT services reached 7 percent annually, six times higher than total employment growth. The diffusion and adoption of digital technologies are just as critical as their invention. Digital uptake has accelerated since the COVID-19 pandemic, with 1.5 billion new internet users added from 2018 to 2022. The share of firms investing in digital solutions around the world has more than doubled from 2020 to 2022. Low-income countries, vulnerable populations, and small firms, however, have been falling behind, while transformative digital innovations such as artificial intelligence (AI) have been accelerating in higher-income countries. Although more than 90 percent of the population in high-income countries was online in 2022, only one in four people in low-income countries used the internet, and the speed of their connection was typically only a small fraction of that in wealthier countries. As businesses in technologically advanced countries integrate generative AI into their products and services, less than half of the businesses in many low- and middle-income countries have an internet connection. The growing digital divide is exacerbating the poverty and productivity gaps between richer and poorer economies. The Digital Progress and Trends Report series will track global digitalization progress and highlight policy trends, debates, and implications for low- and middle-income countries. The series adds to the global efforts to study the progress and trends of digitalization in two main ways: · By compiling, curating, and analyzing data from diverse sources to present a comprehensive picture of digitalization in low- and middle-income countries, including in-depth analyses on understudied topics. · By developing insights on policy opportunities, challenges, and debates and reflecting the perspectives of various stakeholders and the World Bank’s operational experiences. This report, the first in the series, aims to inform evidence-based policy making and motivate action among internal and external audiences and stakeholders. The report will bring global attention to high-performing countries that have valuable experience to share as well as to areas where efforts will need to be redoubled.Publication Global Economic Prospects, June 2025(Washington, DC: World Bank, 2025-06-10)The global economy is facing another substantial headwind, emanating largely from an increase in trade tensions and heightened global policy uncertainty. For emerging market and developing economies (EMDEs), the ability to boost job creation and reduce extreme poverty has declined. Key downside risks include a further escalation of trade barriers and continued policy uncertainty. These challenges are exacerbated by subdued foreign direct investment into EMDEs. Global cooperation is needed to restore a more stable international trade environment and scale up support for vulnerable countries grappling with conflict, debt burdens, and climate change. Domestic policy action is also critical to contain inflation risks and strengthen fiscal resilience. To accelerate job creation and long-term growth, structural reforms must focus on raising institutional quality, attracting private investment, and strengthening human capital and labor markets. Countries in fragile and conflict situations face daunting development challenges that will require tailored domestic policy reforms and well-coordinated multilateral support.Publication Global Economic Prospects, January 2025(Washington, DC: World Bank, 2025-01-16)Global growth is expected to hold steady at 2.7 percent in 2025-26. However, the global economy appears to be settling at a low growth rate that will be insufficient to foster sustained economic development—with the possibility of further headwinds from heightened policy uncertainty and adverse trade policy shifts, geopolitical tensions, persistent inflation, and climate-related natural disasters. Against this backdrop, emerging market and developing economies are set to enter the second quarter of the twenty-first century with per capita incomes on a trajectory that implies substantially slower catch-up toward advanced-economy living standards than they previously experienced. Without course corrections, most low-income countries are unlikely to graduate to middle-income status by the middle of the century. Policy action at both global and national levels is needed to foster a more favorable external environment, enhance macroeconomic stability, reduce structural constraints, address the effects of climate change, and thus accelerate long-term growth and development.Publication Using Immunization Coverage Rates for Monitoring Health Sector Performance : Measurement and Interpretation Issues(World Bank, Washington, DC, 2000-08)Immunization against childhood diseases such as diphtheria, pertussis, tetanus, polio and measles is one of the most important means of preventing childhood morbidity and mortality. Despite the low cost of basic childhood immunizations, nearly 3 million children still die each year from vaccine-preventable diseases. Achieving and maintaining high levels of immunization coverage must therefore be a priority for all health systems. In order to monitor progress in achieving this objective, immunization coverage data can serve as an indicator of a health system's capacity to deliver essential services to the most vulnerable members of a population. This note discusses the use of trends in immunization coverage data, and argues that immunization is a health output with a strong impact on child morbidity, child mortality and permanent disability. This note discusses measurement and interpretation issues for coverage data collected through surveys and administrative records.Publication The Container Port Performance Index 2023(Washington, DC: World Bank, 2024-07-18)The Container Port Performance Index (CPPI) measures the time container ships spend in port, making it an important point of reference for stakeholders in the global economy. These stakeholders include port authorities and operators, national governments, supranational organizations, development agencies, and other public and private players in trade and logistics. The index highlights where vessel time in container ports could be improved. Streamlining these processes would benefit all parties involved, including shipping lines, national governments, and consumers. This fourth edition of the CPPI relies on data from 405 container ports with at least 24 container ship port calls in the calendar year 2023. As in earlier editions of the CPPI, the ranking employs two different methodological approaches: an administrative (technical) approach and a statistical approach (using matrix factorization). Combining these two approaches ensures that the overall ranking of container ports reflects actual port performance as closely as possible while also being statistically robust. The CPPI methodology assesses the sequential steps of a container ship port call. ‘Total port hours’ refers to the total time elapsed from the moment a ship arrives at the port until the vessel leaves the berth after completing its cargo operations. The CPPI uses time as an indicator because time is very important to shipping lines, ports, and the entire logistics chain. However, time, as captured by the CPPI, is not the only way to measure port efficiency, so it does not tell the entire story of a port’s performance. Factors that can influence the time vessels spend in ports can be location-specific and under the port’s control (endogenous) or external and beyond the control of the port (exogenous). The CPPI measures time spent in container ports, strictly based on quantitative data only, which do not reveal the underlying factors or root causes of extended port times. A detailed port-specific diagnostic would be required to assess the contribution of underlying factors to the time a vessel spends in port. A very low ranking or a significant change in ranking may warrant special attention, for which the World Bank generally recommends a detailed diagnostic.