FISCAL POLICY, EXPECTATION TRAPS, AND CHILD LABOR |
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| Authors: | PATRICK M. EMERSON SHAWN D. KNABB |
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| Affiliation: | Emerson:;Assistant Professor, Department of Economics, Oregon State University, 303 Ballard Extension Hall, Corvallis, OR 97331. Phone 1-541-737-1479, Fax 1-541-737-5917, E-mail Knabb:;Assistant Professor, Department of Economics, Western Washington University, 516 High Street, Bellingham, WA 98225. Phone 1-360-650-2587, Fax 1-360-650-6315, E-mail |
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| Abstract: | ![]()
This paper develops a dynamic model with overlapping generations where there are two possible equilibria: one without child labor, and one with it. It is shown that intergenerational transfers can eliminate the child labor equilibrium and that this intervention is Pareto improving. However, if society does not believe that the government will implement the transfer program, it won't, reinforcing society's expectations. This is true even if the transfer program would have been implemented in the absence of uncertainty. Thus a government may be powerless to prevent the child labor equilibrium if it does not command the confidence of their populace, leaving the country in an expectations trap. ( JEL D91, E60, J20, O20) |
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