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Poverty traps and intergenerational transfers

  • Luciano Fanti

    ()

  • Luca Spataro

    ()

In this paper, by adopting an OLG neoclassical growth model we show that intergenerational transfers may trigger the take off of an economy entrapped into poverty in a twofold way: 1) by eliminating the zero equilibrium -which, under technology with low factor substitutability, is always a "catching" point- so that the economy might start converging to a positive equilibrium. In this case the appropriate instrument turns out to be a transfer from the old to the young, while there is no room for policies redistributing in the opposite direction (i.e. a pay-as you-go-pension scheme); 2) when the rich equilibrium is unstable -which can be the case under high intertemporal substitution of individuals- the introduction of transfers may stabilize such an equilibrium, so that the economy starts converging to it. In the latter case both policy programs such as pay-as-you-go pension schemes or subsidies to the young may help escaping from poverty. However, we point out that in either circumstances, the "size" of transfers should be sufficiently large (and, as for pensions not even too large), in order to avoid ineffective and useless burden on the taxpayers without triggering the take off.

(This abstract was borrowed from another version of this item.)

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File URL: http://hdl.handle.net/10.1007/s10797-008-9086-8
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Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 15 (2008)
Issue (Month): 6 (December)
Pages: 693-711

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Handle: RePEc:kap:itaxpf:v:15:y:2008:i:6:p:693-711
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  1. Galor, Oded, 1996. "Convergence? Inferences from Theoretical Models," CEPR Discussion Papers 1350, C.E.P.R. Discussion Papers.
  2. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  3. Costas Azariadis, 1996. "The Economics of Poverty Traps Part One: Complete Markets," Working Papers 9606, Centro de Investigacion Economica, ITAM.
  4. repec:cup:cbooks:9780521001151 is not listed on IDEAS
  5. Hall, Robert E, 1988. "Intertemporal Substitution in Consumption," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 339-57, April.
  6. Hoff, Karla & Sen, Arijit, 2005. "The kin system as a poverty trap?," Policy Research Working Paper Series 3575, The World Bank.
  7. A. Prskawetz & G. Steinmann & G. Feichtinger, 2000. "Human capital, technological progress and the demographic transition," Mathematical Population Studies, Taylor & Francis Journals, vol. 7(4), pages 343-363.
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