A Dynamic Incentive-Based Argument for Conditional Transfers

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A Dynamic Incentive-Based Argument for Conditional Transfers

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DILIP MOOKHERJEE
DEBRAJ RAY

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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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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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Paper
- Dilip Mookherjee & Debraj Ray, 2008. "A Dynamic Incentive-Based Argument for Conditional Transfers," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-170, Boston University - Department of Economics. [Downloadable!]

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Debraj Ray, 2006. "On the dynamics of inequality," Economic Theory, Springer, vol. 29(2), pages 291-306, October. [Downloadable!] (restricted)
Dilip Mookherjee & Debraj Ray, 2003. "Persistent Inequality," Review of Economic Studies, Blackwell Publishing, vol. 70(2), pages 369-393, 04. [Downloadable!] (restricted)
Other versions:
- Dilip Mookherjee & Debraj Ray, 2000. "Persistent Inequality," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-108, Boston University - Department of Economics, revised Oct 2002. [Downloadable!]
- Mookherjee, Dilip & Ray, Debraj, 2002. "Persistent Inequality," Discussion Paper 57, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
Mookherjee, Dilip & Napel, Stefan, 2007. "Intergenerational mobility and macroeconomic history dependence," Journal of Economic Theory, Elsevier, vol. 137(1), pages 49-78, November. [Downloadable!] (restricted)
Other versions:
- Dilip Mokherjee & Stefan Napel, 2006. "Intergenerational Mobility and Macroeconomic History Dependence," Discussion Papers 1, Aboa Centre for Economics. [Downloadable!]
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. [Downloadable!] (restricted)
Freeman, Scott, 1996. "Equilibrium Income Inequality among Identical Agents," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1047-64, October. [Downloadable!] (restricted)
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). [Downloadable!]
Other versions:
- Skoufias, Emmanuel & Parker, Susan W., 2001. "Conditional cash transfers and their impact on child work and schooling," FCND discussion papers 123, International Food Policy Research Institute (IFPRI). [Downloadable!]
Marianne Bertrand & Sendhil Mullainathan & Eldar Shafir, 2004. "A Behavioral-Economics View of Poverty," American Economic Review, American Economic Association, vol. 94(2), pages 419-423, May. [Downloadable!]

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