How to Deal with Covert Child Labour, and Give Children an Effective Education, in a Poor Developing Country

Abstract:     
As credit and insurance markets are imperfect, and given that intra-family transfers, and the way a child uses her time outside school hours, are private information, the second-best policy makes school enrollment compulsory, forces overt child labour below its efficient level (if positive), and uses a combination of need and merit based grants, financed by earmarked taxes, to relax credit constraints, redistribute and insure. Existing conditional cash transfer schemes can be made to approximate the second-best policy by incorporating these principles in some measure.

Number of Pages in PDF File: 20

Keywords: child labour, education, uncertainty, moral hazard, optimal taxation

JEL Classification: D82, H21, H31, I28, J24

working papers series