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Poverty traps and intergenerational transfers

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  • Luciano Fanti

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  • Luca Spataro

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Abstract

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.
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Suggested Citation

  • Luciano Fanti & Luca Spataro, 2008. "Poverty traps and intergenerational transfers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(6), pages 693-711, December.
  • Handle: RePEc:kap:itaxpf:v:15:y:2008:i:6:p:693-711
    DOI: 10.1007/s10797-008-9086-8
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    References listed on IDEAS

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    1. Galor, Oded, 1996. "Convergence? Inferences from Theoretical Models," Economic Journal, Royal Economic Society, vol. 106(437), pages 1056-1069, July.
    2. de la Croix,David & Michel,Philippe, 2002. "A Theory of Economic Growth," Cambridge Books, Cambridge University Press, number 9780521001151, August.
    3. 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 467-467.
    4. Azariadis, Costas, 1996. "The Economics of Poverty Traps: Part One: Complete Markets," Journal of Economic Growth, Springer, vol. 1(4), pages 449-496, December.
    5. Hoff, Karla & Sen, Arijit, 2005. "The kin system as a poverty trap?," Policy Research Working Paper Series 3575, The World Bank.
    6. Hall, Robert E, 1988. "Intertemporal Substitution in Consumption," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 339-357, April.
    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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    Citations

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    Cited by:

    1. Manuela Gussoni & Andrea Mangani, 2009. "The impact of public funding for innovation on firms' R&D investments: Do R&D cooperation and appropriability matter?," Discussion Papers 2009/90, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    2. Luciano Fanti & Luca Gori, 2012. "PAYG Pensions and Economic Cycles," Public Finance Review, , vol. 40(2), pages 240-269, March.
    3. Luciano Fanti & Luca Gori, 2011. "On economic growth and minimum wages," Journal of Economics, Springer, vol. 103(1), pages 59-82, May.
    4. Luciano Fanti & Luca Gori, 2012. "Public Expenditure on Health and Private Old-Age Insurance in an OLG Growth Model with Endogenous Fertility: Chaotic Dynamics Under Perfect Foresight," Computational Economics, Springer;Society for Computational Economics, vol. 40(4), pages 333-353, December.
    5. Maurizio Lisciandra, 2007. "The Role of Reciprocating Behaviour in Contract Choice," Discussion Papers 2007/65, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    6. Luciano Fanti, 2015. "Growth, PAYG pension systems crisis and mandatory age of retirement," Economics Bulletin, AccessEcon, vol. 35(2), pages 1160-1167.
    7. Luciano Fanti & Luca Gori, 2012. "Endogenous Lifetime in an Overlapping-Generations Small Open Economy," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 68(2), pages 121-152, June.
    8. Luciano Fanti & Luca Gori, 2009. "Longevity, fertility and PAYG pension systems sustainability," Discussion Papers 2009/77, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    9. Fanti, Luciano & Gori, Luca, 2010. "Child policy solutions for the unemployment problem," Economics Letters, Elsevier, vol. 109(3), pages 147-149, December.
    10. Luciano, Fanti & Luca, Gori & Cristiana, Mammana & Elisabetta, Michetti, 2016. "Complex dynamics in an OLG model of growth with inherited tastes," MPRA Paper 69906, University Library of Munich, Germany.
    11. Luciano Fanti & Luca Gori, 2009. "Endogenous fertility, endogenous lifetime and economic growth: the role of health and child policies," Discussion Papers 2009/91, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    12. Lorenzo Corsini & Elisabetta Olivieri, 2008. "Technological Change and the Wage Differential between Skilled and Unskilled Workers: Evidence from Italy," Discussion Papers 2008/73, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    13. Luca Gori, 2009. "Endogenous fertility, family policy and multiple equilibria," Discussion Papers 2009/79, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    14. Luciano Fanti & Luca Gori, 2013. "Fertility-related pensions and cyclical instability," Journal of Population Economics, Springer;European Society for Population Economics, vol. 26(3), pages 1209-1232, July.
    15. Luciano Fanti & Luca Gori, 2008. "PAYG pensions and economic cycles: exogenous versus endogenous fertility," Discussion Papers 2008/75, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    16. Marco Guerrazzi, 2005. "Notes on Continuous Dynamic Models: the Benhabib-Farmer Condition for Indeterminacy," Discussion Papers 2005/54, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.

    More about this item

    Keywords

    Poverty traps; Intergenerational transfers; OLG; D31; D50; O11; O23;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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