Redistributive policies, social integration and productivity: an exploration

Abstract

The economic conditions of the poor segments of a population can be improved through government transfers or through increases in the market income of the individuals in the relevant groups. Both effects may interact. A common argument, found both in informal discussions and in the recent literature on economic development, is that the level of individual productivity depends on that of the community where the agent lives and performs activities. It would follow that "social integration", in the sense of dense contacts between people with different labor incomes, tends to create positive externalities for the relatively poor. Some of these externalities could be attributed to informal learning, either in the workplace or in the place of residence; in addition, a certain homogeneity in behavior patterns (which can be expected to associate with less "segregated" neighborhoods) is likely to reduce transaction costs overall. If these effects are present, redistributive policies which modify the spatial composition of the population --or otherwise change the strength of the interaction between groups--may influence the productivity of the target sectors, and their ability to escape "poverty traps".