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A Dynamic Incentive-Based Argument for Conditional Transfers

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  • DILIP MOOKHERJEE
  • DEBRAJ RAY

Abstract

We compare the long-run effects of replacing unconditional transfers to the poor by transfers conditional on the education of children. Unlike Mirrlees' income taxation model, the distribution of skill evolves endogenously. Human capital accumulation follows the Freeman-Ljungqvist-Mookherjee-Ray OLG model with missing capital markets and dynastic bequest motives. Conditional transfers (funded by taxes on earnings of the skilled) are shown to induce higher long-run output per capita and (both utilitarian and Rawlsian) welfare, owing to their superior effect on skill accumulation incentives. The result is established both with two skill levels, and a continuum of occupations. Copyright © 2008 The Economic Society of Australia.

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Bibliographic Info

Article provided by The Economic Society of Australia in its journal Economic Record.

Volume (Year): 84 (2008)
Issue (Month): s1 (09)
Pages: S2-S16

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Handle: RePEc:bla:ecorec:v:84:y:2008:i:s1:p:s2-s16

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  1. Dilip Mookherjee & Debraj Ray, 2003. "Persistent Inequality," Review of Economic Studies, Wiley Blackwell, vol. 70(2), pages 369-393, 04.
  2. Ljungqvist, Lars, 1993. "Economic underdevelopment : The case of a missing market for human capital," Journal of Development Economics, Elsevier, vol. 40(2), pages 219-239, April.
  3. Skoufias, Emmanuel & Parker, Susan W., 2001. "Conditional cash transfers and their impact on child work and schooling," FCND briefs 123, International Food Policy Research Institute (IFPRI).
  4. Dilip Mokherjee & Stefan Napel, 2006. "Intergenerational Mobility and Macroeconomic History Dependence," Discussion Papers 1, Aboa Centre for Economics.
  5. Debraj Ray, 2006. "On the dynamics of inequality," Economic Theory, Springer, vol. 29(2), pages 291-306, October.
  6. Thurow, Lester C, 1974. "Cash Versus In-Kind Transfers," American Economic Review, American Economic Association, vol. 64(2), pages 190-95, May.
  7. Bertrand, Marianne & Shafir, Eldar & Mullainathan, Sendhil, 2004. "A Behavioral Economics View of Poverty," Scholarly Articles 2907437, Harvard University Department of Economics.
  8. Banerjee, Abhijit Vinayak & Benabou, Roland & Mookherjee, Dilip (ed.), 2006. "Understanding Poverty," OUP Catalogue, Oxford University Press, number 9780195305203, September.
  9. Behrman, Jere R & Sengupta, Piyali & Todd, Petra, 2005. "Progressing through PROGRESA: An Impact Assessment of a School Subsidy Experiment in Rural Mexico," Economic Development and Cultural Change, University of Chicago Press, vol. 54(1), pages 237-75, October.
  10. Freeman, Scott, 1996. "Equilibrium Income Inequality among Identical Agents," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1047-64, October.
  11. Galasso, Emanuela & Ravallion, Martin, 2005. "Decentralized targeting of an antipoverty program," Journal of Public Economics, Elsevier, vol. 89(4), pages 705-727, April.
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Cited by:
  1. Schneider, Andrea, 2010. "Redistributive taxation vs. education subsidies: Fostering equality and social mobility in an intergenerational model," Economics of Education Review, Elsevier, vol. 29(4), pages 597-605, August.
  2. Dilip Mookherjee & Silvia Prina & Debraj Ray, 2010. "A Theory Of Endogenous Fertility With Occupational Choice," Boston University - Department of Economics - Working Papers Series WP2010-036, Boston University - Department of Economics.

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