Relationship between Real GDP Growth and Transfer Payments...

Transfer payments are government outlays, for programs such as Social Security and welfare, for which the government does not receive any goods or services in return. Transfer payments were designed as a way to provide a safety net to citizens in need of assistance. In the last fifty years we have seen a consistent increase in transfer payments, regardless of the economic conditions faced by the nation. Some of this continual increase in transfer payments can be explained by demographics (Baby Boomers collecting Social Security), changes in the political climate (immigration amnesty in the 1980s) as well as the economic climate of the last decade (extended unemployment compensation). In this paper, we attempt to analyze the effect, if any,†¦show more content†¦Finally and more importantly the results show that, statistically speaking, there is not enough evidence to infer that transfer payments during times of recession contribute to GDP growth. One of the surprising results from this model is the negative relationship between non transfer payments and GDP growth. The model shows that during times of economic recession, a $1 billion investment in non transfer payments actually decreases per capita GDP by $12.88. The negative relationship still holds during times of economic expansion: a $1 billion investment in non transfer payments leads to a decrease in per capita GDP of $10.17. If we combine these results and the fact that we found that transfer payments have no statistical significance, we can infer that an expansionary fiscal policy in times of economic recession has a negligible impact on GDP growth. During times of economic expansion, we found that non transfer payments have a negative impact on GDP growth; on the other hand, transfer payments do have an impact, albeit extremely small, on GDP growth. We can thus reject the proposition that an increase in government spending helps fuel economic growth (recession or no). 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