The Impact of Pro-Vulnerable Income Transfers : Leisure, Dependency and a Distribution Hypothesis

This paper studies a transmission
mechanism through which pro-vulnerable income transfers may
affect individual decision-making of non-beneficiaries in an
extreme poverty context, leading to labor supply contraction
and the so-called dependency syndrome. The argument is based
on the distributional distortion this transfer may provoke
to the relative quality of leisure, enjoyed by the
population in an extreme poverty scenario. Assuming the
existence of vulnerable individuals and different income
groups based on certain physical, economic, or social
characteristics, the author studies their decision processes
and, in particular, their reactions to the aid program. The
results of this theoretical research provide some insights
on the conditions that an optimal pro-poor income transfer
should present. A literature review is presented in support
of the arguments made in the theoretical part.