When fiscal policy is active and monetary policy is passive in a heterogeneous agent New Keynesian (HANK) model, deficit-financed transfers to low-asset households lead to similar cumulative inflation but greater increases in real output than transfers to wealthier households. Household heterogeneity and targeted policy change the timing of output gaps, making this consistent with the Phillips Curve, contrary to conventional "sacrifice ratio" intuition. Equilibria where fiscal policy is active or passive but slow adjusting are quantitatively similar, so long as monetary policy is passive. However, even large active fiscal transfers to high marginal propensity to consume households induce a less sustained output expansion than a monetary policy shock in a conventional active monetary/passive fiscal setting, as the former's effect on real output is more persistent. In contrast, when monetary policy is passive, monetary policy is roughly as stimulative as fiscal policy.
I hypothesize that cash transfers to poor households improve the mental health of recipient
children. Specifically, I posit that the 1993 Omnibus Budget Reconciliation Act’s expansion
of the Earned Income Tax Credit (EITC) could have worked through a number of mechanisms
to reduce the incidence of depression, anxiety, and antisocial behavior among children in
eligible households, as reported by broad survey indexes. To test this claim, I estimate the
intent-to-treat (ITT) effect of the EITC using a difference-in-differences (DID) identification
strategy, with linear controls and household and region fixed effects. I find evidence that
the federal tax credit expansion reduced externalizing behavior and tendencies among low-
income children.