We contrast the effects of a transfer tied to investment in public infrastructure from a traditional pure transfer. The latter has no growth or dynamic consequences; it is always welfare improving, the gains increasing with the stock of government debt and the benefits of debt reduction. A tied...

This paper examines the absorption of government spending shocks in the presence of formal and informal production. Calibrating a two-sector open economy model that is consistent with data from India for the period 1990-2017, we show that increases in both government consumption and investment...