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Sticks and Carrots for the Alleviation of Long Term Poverty

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  • Fred Schroyen
  • Gaute Torsvik

Abstract

Work requirements can make it easier to screen the poor from the non-poor.They can also affect future poverty by changing the poors' incentive to invest in their income capacity. The novelty of our study is the focus on long term poverty. We find that the argument for using work requirements as a screening device is both strengthened and weakened with long term poverty, and that the possibility of using work requirements weakens the incentives to exert effort to escape poverty. We also show that the two incentive problems, to screen poverty and deter poverty, are interwoven; the fact that the poor can exert an effort to increase their probability of being non-poor in the future makes it easier to separate the poor from the non-poor in the initial phase of the program. Finaly we show that if it is possible to commit to a long term poverty alleviation program it is almost always optimal to impose some work requirements on those that receive transfers.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 659.

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Date of creation: 2002
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Handle: RePEc:ces:ceswps:_659

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Keywords: long-term poverty; ratchet effect; moral hazard; screening.;

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  1. Freixas, Xavier & Guesnerie, Roger & Tirole, Jean, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 173-91, April.
  2. Neil Bruce & Michael Waldman, 1988. "Transfers in Kind: Why They Can Be Efficient and Non-Paternalistic," UCLA Economics Working Papers 532, UCLA Department of Economics.
  3. Gibson, John, 2001. "Measuring chronic poverty without a panel," Journal of Development Economics, Elsevier, vol. 65(2), pages 243-266, August.
  4. Joan R. Rodgers & John L. Rodgers, 1993. "Chronic Poverty in the United States," Journal of Human Resources, University of Wisconsin Press, vol. 28(1), pages 25-54.
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