Abstract:
This paper attempts to provide an explanation to the debate whether
infrastructure development is more effective than direct cash transfer to reduce
wage disparity between skilled and unskilled workers. We use a simple general
equilibrium structure to argue that in presence of symmetric productivity effects
direct cash transfer meets the target when such transfer is financed by tax
revenue collected from skilled wage bill. Nevertheless, in case of asymmetric
productivity effects the arguments boil down to how different sectors absorb
infrastructural facility to improve their productivity.
