Conditional Cash Transfers, Public Provision of Private Goods, and Income Redistribution

American Economic Review · 2007 · Volume 97 · Issue 1

Abstract

This paper examines the role of cash transfers as a screening device when combined with in-kind transfers. It shows that linking in-kind to cash transfers makes first-best redistribution possible despite the government's inability to tell rich and poor individuals apart. Moreover, the maximal attainable welfare for the poor can be pushed beyond its first-best level by distorting downward the quality of the indivisible good the poor receive relative to the cash value of their net transfers. Using in-kind transfers alone, as in Besley and Coate (1991), leads to a third-best solution. (JEL D31, H23, H41)

Keywords

Taxation and Subsidies: Externalities, Redistributive Effects, Environmental Taxes and Subsidies, Public Goods

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