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Targeting the Poor: A Macroeconomic Analysis of Cash Transfer Programs

  • Eduardo Zilberman

    ()

    (Department of Economics PUC-Rio)

  • Tiago Berriel

    (EPGe/FGV)

This paper introduces cash transfers targeting the poor in an incomplete marketsmodel with heterogeneous agents facing idiosyncratic risk. These transfers change the degree of insurance in the economy and affect precautionary motives asymmetrically,leading the poorest households to decrease savings proportionally more than their richer counterparts. In a model economy calibrated to Brazil, once the cash transfer program is adopted, wealth inequality and social welfare increase, poverty decreases,while employment and income inequality remain about the same. Imperfect access to financial markets is important for these results, whereas whether the program is funded with lump sum or distortive taxes is not.

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Paper provided by Department of Economics PUC-Rio (Brazil) in its series Textos para discussão with number 598.

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Length: 41p
Date of creation: Aug 2012
Handle: RePEc:rio:texdis:598
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