General Equilibrium Analysis of Conditional Cash Transfers

Conditional Cash Transfer (CCT) program is one of the most important anti-poverty policies worldwide. In this document, I study the economic effects of this program by using a stylized dynamic general equilibrium model. I look at the program’s impact on output, human capital, poverty and income inequality. I also study its welfare implications and its effects on the intergenerational transmission of poverty. The quantitative analysis reveals that a long-term implementation of this anti-poverty program helps to reduce the intergenerational transmission of poverty. In aggregate terms the welfare gain is small, but varies across agents; the winners are those who are in the lower tail of the income distribution and the losers are those located in the upper tail. Finally, this program increases the human capital of households and, through this channel, induces a consistent reduction of both poverty and income inequality.