Policies to Combat Child Labor: A Dynamic Analysis

This paper analyzes child labor in a fully dynamic model with credit constraints. It considers the long-run and short-run effects of an array of policies like lump-sum subsidy, enrollment subsidy, improvement in primary education and variations in loan market parameters. It is shown that some policies that reduce child labor in the long run may lead to an increase in child labor in the short run. Marginal changes in the borrowing rate or credit limit do not affect the long-run incidence of child labor if the rate of time preference is constant. Implications of variable rate of time preference are also examined. Address correspondence to Rajat Deb Department of Economics Southern Methodist University Dallas, Texas 75275 Email: [email protected] ∗Most of the work behind the paper was completed during Satya Das’s visit to SMU in 2003. We would like to thank Kausik Basu, Sajal Lahiri and our SMU colleagues Richard Barnett, Saltuk Ozerturk and Kamal Saggi for their comments. The usual caveat applies.