Targeting the Poor: A Macroeconomic Analysis of Cash Transfer Programs
This paper introduces cash transfers targeting the poor in an incomplete markets
model with heterogeneous agents facing idiosyncratic risk. These transfers change the
degree of insurance in the economy and aect 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
nancial markets is important for these results, whereas whether the program is funded
with lump sum or distortive taxes is not.
Texto para discussão no. 598
Eduardo Zilberman. Tiago Couto Berriel.