Targeted interventions: Consumption dynamics and distributional effects

Anindya S. Chakrabarti, Abinash Mishra and Mohsen Mohaghegh

IIMA Working Papers from Indian Institute of Management Ahmedabad, Research and Publication Department

Abstract: Income distribution-based targeted interventions are quite common in developing economies. However, often due to institutional frictions, identification of the recipients happens at a lower frequency than the frequency of movement across income groups, leading to mis-identification of true and false recipients. What are the general equilibrium effects of such interventions? To measure the effects, we develop a heterogeneous agent production economy where agents face uninsurable income risks and we calibrate it to a novel panel dataset on monthly household income and consumption in India. We study the effects of persistent (identity-based) shocks as opposed to the usual temporary (income-based) income shocks, the difference being that in persistent payments individuals are guaranteed a payment across periods, regardless of their income status in future. We find that temporary interventions have muted distributional effects, while identity-based stimulus of the same size give rise to more prominent effects. In particular, a persistent income shock to the poorest decile equivalent to 0.6% of GDP leads to a 0.543% increase in consumption.

Date: 2021-09-13
New Economics Papers: this item is included in nep-dev, nep-dge, nep-isf and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:iim:iimawp:14661

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