Targeted versus Universal Public Policies in Nicaragua: Assessing the Effects on Growth and Inequality Using Micro-Data

The present paper deals with the effect of public policies on growth and inequality in Nicaragua. Traditionally, the literature has approached the problem of the relationship between growth and inequality by analyzing cross-country data (Persson and Tabellini (1994), Banerjee and Duflo (2003)). On the contrary, we use micro-data. We exploit information from three Living Standard Measurement Surveys car-ried out in 1993, 1998 and 2001. The last two rounds constitute a longitudinal data set, while the first is a cross-section of different households. Nevertheless, the whole information set is used in order to explain the dynamics of consump-tion. In a second step, the model is used to asses the effect of different policies. In developing countries, a similar framework is commonly applied to the analy-sis of vulnerability and anti-poverty policies (Datt, Simler,Mukherjee and Dava (2000)). We apply it to the analysis of household consumption dynamics and its effects on growth and inequality. We simulate different policies. First, we study the effect of a government supported program of increase in human capital, measured by education. Second, we consider an infrastructural policy which proxies an improvement in marke