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Fiscal Policy, Expectation Traps, And Child Labor

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  • PATRICK M. EMERSON
  • SHAWN D. KNABB

Abstract

This paper develops a dynamic model with overlapping generations where there are two possible equilibria: one without child labor, and one with it. It is shown that intergenerational transfers can eliminate the child labor equilibrium and that this intervention is Pareto improving. However, if society does not believe that the government will implement the transfer program, it won’t, reinforcing society’s expectations. This is true even if the transfer program would have been implemented in the absence of uncertainty. Thus a government may be powerless to prevent the child labor equilibrium if it does not command the confidence of their populace, leaving the country in an expectations trap. (JEL D91, E60, J20, O20)

Suggested Citation

  • Patrick M. Emerson & Shawn D. Knabb, 2007. "Fiscal Policy, Expectation Traps, And Child Labor," Economic Inquiry, Western Economic Association International, vol. 45(3), pages 453-469, July.
    • Handle: RePEc:bla:ecinqu:v:45:y:2007:i:3:p:453-469
    DOI: 10.1111/j.1465-7295.2006.00012.x
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    Cited by:

    1. Kamalika Chakraborty & Bidisha Chakraborty, 2019. "Will An Increase In Landholding Size Reduce Child Labour In The Presence Of Unemployment? A Theoretical Analysis," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 64(221), pages 85-106, April – J.
    2. Chakraborty, Kamalika & Chakraborty, Bidisha, 2016. "Will increase in size of landholding reduce child labour in presence of unemployment? A theoretical analysis," MPRA Paper 74206, University Library of Munich, Germany.
    3. Fabre, Alice & Pallage, Stéphane, 2015. "Child labor, idiosyncratic shocks, and social policy," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 394-411.
    4. Chakraborty, Bidisha & Chakraborty, Kamalika, 2016. "Low Level Equilibrium Trap, Unemployment, School Quality, Child Labour and Human Capital Formation," MPRA Paper 74621, University Library of Munich, Germany.
    5. Bandara, Amarakoon & Dehejia, Rajeev & Lavie-Rouse, Shaheen, 2015. "The Impact of Income and Non-Income Shocks on Child Labor: Evidence from a Panel Survey of Tanzania," World Development, Elsevier, vol. 67(C), pages 218-237.
    6. Sami Ullah Khan & Muhammad Jehangir Khan, 2016. "The Impact of Remittances on Child Education in Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 21(1), pages 69-98, Jan-June.
    7. Jellal, Mohamed & Tarbalouti, Essaid, 2012. "Institutions éducation et travail des enfants [Institutions education and child labor]," MPRA Paper 39384, University Library of Munich, Germany.
    8. Patrick M. Emerson & André Portela Souza, 2011. "Is Child Labor Harmful? The Impact of Working Earlier in Life on Adult Earnings," Economic Development and Cultural Change, University of Chicago Press, vol. 59(2), pages 345-385.
    9. Patrick M. Emerson & Shawn D. Knabb, 2013. "Bounded rationality, expectations, and child labour," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 46(3), pages 900-927, August.
    10. Kamalika Chakraborty & Bidisha Chakraborty, 2018. "Low level equilibrium trap, unemployment, efficiency of education system, child labour and human capital formation," Journal of Economics, Springer, vol. 125(1), pages 69-95, September.
    11. Goto, Hideaki, 2011. "Social norms, inequality and child labor," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(6), pages 806-814.
    12. Stéphane Pallage & Alice Fabre, 2010. "Child Labor and Aggregate Fluctuations," 2010 Meeting Papers 1037, Society for Economic Dynamics.
    13. Chakraborty, Kamalika & Chakraborty, Bidisha, 2016. "Learning by doing, low level equilibrium trap, and effect of domestic policies on child labour," MPRA Paper 74712, University Library of Munich, Germany.
    14. Mohammad Nashir Uddin & Mohammad Hamiduzzaman & Bernhard G. Gunter, 2009. "Physical and Psychological Implications of Risky Child Labor: A Study in Sylhet City, Bangladesh," Bangladesh Development Research Working Paper Series (BDRWPS) BDRWPS No. 8, Bangladesh Development Research Center (BDRC).
    15. Emerson, Patrick M. & Souza, André Portela, 2008. "Birth Order, Child Labor, and School Attendance in Brazil," World Development, Elsevier, vol. 36(9), pages 1647-1664, September.
    16. Chakraborty, Kamalika & Chakraborty, Bidisha, 2016. "Child labour ban versus Education subsidy in a model with learning by doing effect in unskilled work," MPRA Paper 74203, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • O20 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - General

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