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Fiscal Policy, Expectation Traps, And Child Labor

  • PATRICK M. EMERSON
  • SHAWN D. KNABB

"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) Copyright 2006 Western Economic Association International.

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Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 45 (2007)
Issue (Month): 3 (07)
Pages: 453-469

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Handle: RePEc:bla:ecinqu:v:45:y:2007:i:3:p:453-469
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  1. Oded Galor & Joseph Zeira, 2013. "Income Distribution and Macroeconomics," Working Papers 2013-12, Brown University, Department of Economics.
  2. Saqib Jafarey & Sajal Lahiri, 1999. "Will trade sanctions reduce child labour? The role of credit markets," Economics Discussion Papers 500, University of Essex, Department of Economics.
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  16. Rodrik, Dani, 1989. "Promises, Promises: Credible Policy Reform via Signalling," Economic Journal, Royal Economic Society, vol. 99(397), pages 756-72, September.
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