A Dynamic Incentive-Based Argument for Conditional Transfers

15 Pages Posted: 1 Sep 2008

See all articles by Dilip Mookherjee

Dilip Mookherjee

Boston University - Department of Economics

Debraj Ray

New York University (NYU) - Department of Economics; Autonomous University of Barcelona - Instituto de Analisis Economico (CSIC)

Abstract

We compare the long-run effects of replacing unconditional transfers to the poor by transfers conditional on the education of children. Unlike Mirrlees income taxation model, the distribution of skill evolves endogenously. Human capital accumulation follows the Freeman-Ljungqvist-Mookherjee-Ray OLG model with missing capital markets and dynastic bequest motives. Conditional transfers (funded by taxes on earnings of the skilled) are shown to induce higher long-run output per capita and (both utilitarian and Rawlsian) welfare, owing to their superior effect on skill accumulation incentives. The result is established both with two skill levels, and a continuum of occupations.

Suggested Citation

Mookherjee, Dilip and Ray, Debraj, A Dynamic Incentive-Based Argument for Conditional Transfers. Economic Record, Vol. 84, Issue s1, pp. S2-S16, September 2008, Available at SSRN: https://ssrn.com/abstract=1260455 or http://dx.doi.org/10.1111/j.1475-4932.2008.00479.x

Dilip Mookherjee (Contact Author)

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States
617-353-4392 (Phone)
617-353-4143 (Fax)

Debraj Ray

New York University (NYU) - Department of Economics ( email )

269 Mercer Street, 7th Floor
New York, NY 10003
United States
212-998-8906 (Phone)
212-995-4186 (Fax)

Autonomous University of Barcelona - Instituto de Analisis Economico (CSIC)

Campus UAB
E-08193 Bellaterra
Spain

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
2
Abstract Views
302
PlumX Metrics