WP 22: Multiplier effect, Credit, and Economic Cycle: a neo-Kaleckian model

Con­si­de­ring the cumu­la­ti­ve evi­den­ce indi­ca­ting a stron­ger mul­ti­pli­er effect of soci­al bene­fits, such as pen­si­ons,  during the 2015–2016 cri­sis in Bra­zil, and noting that the con­sig­ned cre­dit gran­ted to reti­red wor­kers exhi­bi­ted sig­ni­fi­can­tly smal­ler fluc­tu­a­ti­ons com­pa­red to that exten­ded to acti­ve wor­kers, some stu­di­es argue that soci­al bene­fits ser­ved as a sta­bi­li­zing for­ce for inco­me during the cri­sis. Buil­ding upon this fin­ding, we deve­lop a neo-Kalec­ki­an the­o­re­ti­cal fra­mework to del­ve into the cir­cums­tan­ces under whi­ch the mul­ti­pli­er effect is aug­men­ted during eco­no­mic down­turns. Our model incor­po­ra­tes two clas­ses and hou­sehold bor­rowing. We find that the coun­tercy­cli­cal natu­re of both cre­dit sup­ply and demand con­tri­bu­tes to a more pro­noun­ced coun­tercy­cli­cal mul­ti­pli­er effect (for both trans­fer and auto­no­mous govern­ment mul­ti­pli­er). Further­mo­re, we dis­cuss some con­di­ti­ons under whi­ch the mul­ti­pli­er effect of soci­al bene­fits is higher than that for auto­no­mous expen­di­tu­re, alig­ning with fin­dings from the empi­ri­cal lite­ra­tu­re. In essen­ce, our model for­ma­li­zes the noti­on that soci­al bene­fits, when com­bi­ned with cre­dit mecha­nisms, cons­ti­tu­te a sig­ni­fi­cant ele­ment in inco­me sta­bi­li­za­ti­on during eco­no­mic contractions.