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How to Deal with Covert Child Labour, and Give Children an Effective Education, in a Poor Developing Country: An Optimal Taxation Problem with Moral Hazard

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  • Alessandro Cigno

Abstract

Given that credit and insurance markets are imperfect, and given also that intra-household transfers, and much of the work a child does, are private information, the second-best policy uses a combination of need and merit based education awards, together with a mix of taxes on parental income, and on the return to educational investment. It also makes school enrollment compulsory and, if the child wage rate is sufficiently high, sets a ceiling, decreasing in parental income, on overt child labour.

Suggested Citation

  • Alessandro Cigno, 2010. "How to Deal with Covert Child Labour, and Give Children an Effective Education, in a Poor Developing Country: An Optimal Taxation Problem with Moral Hazard," CESifo Working Paper Series 3077, CESifo.
    • Handle: RePEc:ces:ceswps:_3077
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    References listed on IDEAS

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    1. Fuwa Nobuhiko & Ito Seiro & Kubo Kensuke & Kurosaki Takashi & Sawada Yasuyuki, 2012. "How Does Credit Access Affect Children's Time Allocation?: Evidence from Rural India," Journal of Globalization and Development, De Gruyter, vol. 3(1), pages 1-28, June.
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    3. Hanushek, Eric A. & Leung, Charles Ka Yui & Yilmaz, Kuzey, 2003. "Redistribution through education and other transfer mechanisms," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1719-1750, November.
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    6. Ranjan, Priya, 2001. "Credit constraints and the phenomenon of child labor," Journal of Development Economics, Elsevier, vol. 64(1), pages 81-102, February.
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    9. Ravallion, Martin & Wodon, Quentin, 2000. "Does Child Labour Displace Schooling? Evidence on Behavioural Responses to an Enrollment Subsidy," Economic Journal, Royal Economic Society, vol. 110(462), pages 158-175, March.
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    12. Dehejia, Rajeev H. & Beegle, Kathleen & Gatti, Roberta, 2003. "Child labor, income shocks, and access to credit," Policy Research Working Paper Series 3075, The World Bank.
    13. William R. Johnson, 1987. "Income Redistribution as Human Capital Insurance," Journal of Human Resources, University of Wisconsin Press, vol. 22(2), pages 269-280.
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. How to tax covert child labor
      by Economic Logician in Economic Logic on 2010-06-14 19:14:00

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    Cited by:

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    2. Webbink, Ellen & Smits, Jeroen & de Jong, Eelke, 2012. "Hidden Child Labor: Determinants of Housework and Family Business Work of Children in 16 Developing Countries," World Development, Elsevier, vol. 40(3), pages 631-642.

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    More about this item

    Keywords

    child labour; education; uncertainty; moral hazard;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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