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Conditional Cash Transfers and Education Quality in the Presence of Credit Constraints

  • Elena Del Rey

    ()

    (University of Girona, Campus de Montilivi, 17071 Girona, Spain)

  • Fernanda Estevan

    ()

    (Department of Economics, University of Ottawa, Ottawa, ON)

We investigate the relative merits of unconditional cash transfers (UCT), conditional cash transfers (CCT), and improvements in education quality on efficiency and welfare. In our setting some parents under-invest in their children's education because capital market imperfections prevent them from borrowing. When credit constrained households can be perfectly targeted by the government, we show that CCT are more effective than UCT in enhancing efficiency and equivalent in terms of welfare. When public education quality is very low, raising quality is welfare improving, but is never efficiency enhancing. If the government cannot target constrained households, UCT may be the best policy both in terms of efficiency and welfare.

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Paper provided by University of Ottawa, Department of Economics in its series Working Papers with number 1108E.

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Length: 23 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:ott:wpaper:1108e
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