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We use 20 household surveys for Indias 15 major states spanning 1960-1994 to study how the sectoral composition of economic growth and initial conditions interact to influence how much growth reduced consumption poverty. The elasticities of measured poverty to farm yields and development spending did not differ significantly across states. But the elasticities of poverty to (urban and rural) non-farm output varied appreciably, and the differences were quantitatively important to the overall rate of poverty reduction. States with higher elasticities did not experience higher rates of non-farm growth. The non-farm growth process was more pro-poor in states with initially higher literacy, higher farm productivity, higher rural living standards (relative to urban areas), lower landlessness and lower infant mortality. Key words: Poverty, inequality, economic growth, rural development, human development JEL: I32, O15, O40 The support of the World Banks South Asia Poverty Reduction and Economic Management Unit and the Banks Research Committee (under RPO 681-39) are gratefully acknowledged. Helpful comments were received from Jock Anderson, Christina Malmberg Calvo, Aart Kraay, Gus Ranis, Dominique van de Walle, seminar participants at the World Bank, the International Monetary Fund, a workshop co-sponsored by the International Food Policy Research Institute and the Institute for Development and Communication, India, and the journals anonymous referees. These are the views of the authors, and should not be attributed to the World Bank. EM addresses: mravallion@worldbank.org and gdatt@worldbank.org. 1.

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have provided excellent research assistance. I thank Stephen Machin and three referees for

An overlapping generations model of marriage and divorce is constructed to analyze family structure and intergenernational mobility. Agents differ by sex, marital status, and human capital. Single agents meet in a marriage market and decide whether to accept or reject proposals to wed. Married couples must decide whether to separate or not. Parents invest in their children depending on their wherewithal. A simulated version of the theoretical prototype can generate an equilibrium with a significant number of female-headed households and a high degree of persistence in income across generations. To illustrate the model's mechanics, the effects of two antipoverty policies, namely child support and welfare, are investigated

In the problem of economic development, a phrase that crops up frequently is ‘the vicious circle of poverty.’ It is generally treated as something obvious, too obvious to be worth examining. I hope I may be forgiven if I begin by taking a look at this obvious concept. (R. Nurkse, 1953)

Recent empirical studies show that the intergenerational persistence of economic status in the U.S. is much higher than previously thought. We develop a quantitative theory of inequality and intergenerational transmission of human capital where parents invest in early and college education of their children subject to borrowing constraints. Children differ exogenously in innate abilities, which can be correlated with their parent’s innate ability. An important feature of the environment is that the quality of early education determines the probability of college completion. We calibrate a stationary equilibrium of this economy to relevant statistics in aggregate U.S. data, and use it to investigate the sources of inequality and persistence in earnings. In our benchmark model, about half of the intergenerational persistence and one fourth of the inequality in earnings are accounted for by endogenous investments in education. We find that early investments in education account for most of the endogenous persistence in earnings, while college education generates most of the endogenous inequality in earnings. Our theory is suited to study the effect of educational policies on the persistence of inequality. We show that public resources devoted to early education have the largest impact on earnings mobility. Moreover, non-progressive college subsidies generate more intergenerational persistence of earnings.

This is an outgrowth of an invited paper presented at the American Economic Association Meetings,

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The case for increasing higher education subsidies from their already high levels is repeatedly made by politicians and policy makers. What are the e#ects of further increasing subsidies on inequality, welfare, and e#ciency? In this paper, we develop a simple dynamic general equilibrium framework to answer these questions. Our model features heterogeneity in the income of parents and the academic ability of students. Liquidity constraints create persistence in educational attainment even when ability is independently distributed. Once we prove the existence and uniqueness of equilibrium, we add a government that is equipped with a simple tax and subsidy scheme and calibrate the model to the US economy to get a benchmark for our policy analysis. We focus on three types of policies that are usually proposed. The rst is equality of opportunity. The government can design a tax and subsidy scheme to achieve this, but only at the expense of a decrease in the e#ciency of utilization of education resources; the welfare gain is minimal. The second is an open door policy that aims to maximize the fraction of college-educated labor. This results in a big drop in the above-mentioned e#ciency with little or no welfare gain. The third is the provision of merit-based aid to the poor as opposed to purely need-based aid. This policy can increase education e#ciency with little decrease in welfare. Based on these experiments, we conclude that the case for further increases in higher education subsidies might have been overstated. # Caucutt: Department of Economics, University of Rochester, Rochester, NY 14627. e-mail: ecau@troi.cc.rochester.edu. Kumar: Finance and Business Economics, Marshall School of Business, HOH 701, University of Southern California, Los Angeles, CA 90089-1427. e-mai...