Effects of Growth and Redistributive Policies On Poverty : Simulation Results from a Closed Loop Plan Model for India

This paper evaluates the effects of different growth and redistributive policies on poverty and growth using a two-period consistency type closed-loop planning model that captures interdependence between growth and redistribution. Focusing on fix- flex mode of price formation and two sources of income inequality viz. wage-profit inequality and inequality in wage earning, the model endogenously determine the level and share of income of the poor and the post-terminal growth. Simulation of the model with different growth and distributive policies shows significant growth-equity trade-off and indicates possibility for an appropriate choice of strategy of growth with redistribution for removing poverty