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A Dynamic Incentive-Based Argument for Conditional Transfers

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  • Dilip Mookherjee

    ()
    (Institute for Economic Development, Boston University)

  • Debraj Ray

    ()
    (Department of Economics, New York University)

Abstract

We compare the long-run e ects of replacing unconditional transfers to the poor by transfers conditional on the education of children. Unlike the 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.

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Bibliographic Info

Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - The Institute for Economic Development Working Papers Series with number dp-170.

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Length: 26 pages
Date of creation: Apr 2008
Date of revision:
Handle: RePEc:bos:iedwpr:dp-170

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References

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  1. Mookherjee, Dilip & Napel, Stefan, 2007. "Intergenerational mobility and macroeconomic history dependence," Journal of Economic Theory, Elsevier, Elsevier, vol. 137(1), pages 49-78, November.
  2. Banerjee, Abhijit Vinayak & Benabou, Roland & Mookherjee, Dilip (ed.), 2006. "Understanding Poverty," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780195305203, October.
  3. Dilip Mookherjee & Debraj Ray, 2000. "Persistent Inequality," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series, Boston University - Department of Economics dp-108, Boston University - Department of Economics, revised Oct 2002.
  4. Skoufias, Emmanuel & Parker, Susan W., 2001. "Conditional cash transfers and their impact on child work and schooling," FCND briefs, International Food Policy Research Institute (IFPRI) 123, International Food Policy Research Institute (IFPRI).
  5. Ljungqvist, Lars, 1993. "Economic underdevelopment : The case of a missing market for human capital," Journal of Development Economics, Elsevier, Elsevier, vol. 40(2), pages 219-239, April.
  6. Freeman, Scott, 1996. "Equilibrium Income Inequality among Identical Agents," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 104(5), pages 1047-64, October.
  7. Marianne Bertrand & Sendhil Mullainathan & Eldar Shafir, 2004. "A Behavioral-Economics View of Poverty," American Economic Review, American Economic Association, American Economic Association, vol. 94(2), pages 419-423, May.
  8. 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.
  9. Debraj Ray, 2006. "On the dynamics of inequality," Economic Theory, Springer, Springer, vol. 29(2), pages 291-306, October.
  10. Thurow, Lester C, 1974. "Cash Versus In-Kind Transfers," American Economic Review, American Economic Association, American Economic Association, vol. 64(2), pages 190-95, May.
  11. Galasso, Emanuela & Ravallion, Martin, 2005. "Decentralized targeting of an antipoverty program," Journal of Public Economics, Elsevier, 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, 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, Boston University - Department of Economics WP2010-036, Boston University - Department of Economics.

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