Distributional Effects of Targeted Interventions

39 Pages Posted: 11 Feb 2022

See all articles by Anindya S. Chakrabati

Anindya S. Chakrabati

Indian Institute of Management (IIM), Ahmedabad

Abinash Mishra

Indian Institute of Management Ahmedabad

Mohsen Mohaghegh

Indian Institute of Management (IIM) Ahmedabad

Date Written: November 23, 2021

Abstract

Governments around the world engage in fiscal interventions targeting the poor. Using a rich dataset on income and consumption of Indian households, we estimate the distributional effects of such interventions in a heterogeneous agent model. The standard scheme of interventions that consistently targets lower-income cohorts, has muted distributional impacts. However, a fiscally-equivalent scheme that changes the expected income profile of the targeted households in the same initial cohort irrespective of their future incomes, generates substantially larger effects by changing their income mobility. Quantitatively, such an intervention in the order of 0.6 percent of the output, approximating the Indian scenario, increases consumption share of the targeted group by nearly 2.5 percent, five times as large as the effect of standard interventions. As the intervention becomes larger in magnitude and scope, as is empirically observed in other developing countries, this intensive margin effect becomes stronger along with the extensive margin.

Keywords: Consumption Inequality, Targeted Interventions, Incomplete Markets

JEL Classification: E21, D51, E26

Suggested Citation

Chakrabati, Anindya S. and Mishra, Abinash and Mohaghegh, Mohsen, Distributional Effects of Targeted Interventions (November 23, 2021). Available at SSRN: https://ssrn.com/abstract=3936562 or http://dx.doi.org/10.2139/ssrn.3936562

Anindya S. Chakrabati (Contact Author)

Indian Institute of Management (IIM), Ahmedabad ( email )

Vastrapur
Ahmedabad, Gujarat 380 015
India

Abinash Mishra

Indian Institute of Management Ahmedabad ( email )

Vastraour
Ahmedabad, 380015
India

Mohsen Mohaghegh

Indian Institute of Management (IIM) Ahmedabad ( email )

HOME PAGE: http://sites.google.com/site/mohsenecon12/

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