Working Paper
Are Fiscal Transfers Inflationary?
Abstract: We assess the inflationary effects of fiscal transfers by leveraging advances in the identification of fiscal policy shocks within the recently proposed rotation-invariant time-varying structural vector autoregression. Our analysis suggests that fiscal transfer shocks account for a sizable share of the early post-pandemic increase in the price level through mid-2021. Thereafter, the rise in the price level is dominated by adverse supply shocks (especially supply-chain disruptions), while demand shocks mainly matter later for the lift-off in short-term interest rates. In addition, we find that fiscal transfers were essential for preventing a decline in real output per capita similar to the one experienced during the Great Depression.
JEL Classification: C11; C51; E62;
https://doi.org/10.21799/frbp.wp.2026.23
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Bibliographic Information
Provider: Federal Reserve Bank of Philadelphia
Part of Series: Working Papers
Publication Date: 2026-05-05
Number: 26-23