Abstract

RUIZ MERCADO, ÁNGEL LUIS. DIRECT AND INDIRECT IMPACT OF FEDERAL TRANSFER TO INDIVIDUALS AND TO THE GOVERNMENT OF PUERTO RICO. Finanz. polit. econ. [online]. 2013, vol.5, n.2, pp.37-55. ISSN 2248-6046.

The Puerto Rico Planning Board classifies individual transfer payments into two categories: "earned transfers" and "granted" transfers. The purpose of this work is to estimate the direct and indirect economic effects of federal and other transfer payments to Puerto Rico using two input-output models and two vectors of employment and income coefficients base on tables for years 1992 and 2002. The economic impacts were estimated for three economic indicators namely, gross output, direct and indirect employment and direct and indirect wage income. The results presented in this work shows that the argument that Puerto Ricans enjoy relatively generous income supplements and retirement benefits without imposing heavy tax burdens on highly compensated workers failed to distinguish that most of the transfer payments to individuals were in the category of earned transfers. It is doubtful that this type of transfer "impose heavy tax burdens" to American taxpayers. Since we are an open economy most of the income generated by transfer to individuals is spent of goods and services a substantial amount of which comes from United States. It is also doubtful that earned transfer to individuals (especially transfers in the form of pensions and payments to veterans) have any significant impact on the labor force participation rate or the incentives to work.

Keywords : Puerto Rico; earned transfers; granted transfers; flow of funds; input-output analysis; direct and indirect impacts; incentives to work; low labor force participation rate.

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