The impact of Oportunidades on human capital and income distribution in Mexico: A top-down/bottom-up approach

To analyze the effects of the Mexican Oportunidades conditional cash transfer program on school attendance and household income distribution, this paper links a microeconometric simulation model and a general equilibrium model in a bidirectional way, so to explicitly take spillover effects of the program into account. Our results suggest that partial equilibrium analysis alone underestimates the distributional effects of the program. Extending the coverage of the program to the poor increases school attendance, reduces child labor supply, and increases the equilibrium wages of children who remain at work. With a relatively low fiscal cost, Mexican social policy could further reduce income inequality and poverty.