The article proposes a modified version of a theoretical model that crowds out less
educated workforce from the informal economy in response to a shock in government
transfers. The negative impact of universal child benefits (UCB) is measured
by the outflow of labour from the informal economy in Poland. After it was introduced
in the country in 2016, the “Family 500+” child benefit programme probably
caused a permanent outflow of some 160,000 jobs from the labour market.
The study verifies this assumption with a real business cycle (RBC) model, with
two types of households responding to a positive shock resulting from government
transfers. The endogenous growth factor in the model results from the rate
of return on higher education and lifelong learning. The model describes the statistical
aggregates of the Polish economy. A Bayesian estimation shows an acceptable
fit to the time series, which allows for wider use of the fiscal impulse resulting
in a decline in the economic activity of beneficiaries. The study adds to a debate
on the margins of government intervention in the economy, which at some point
may displace less educated workers in the shadow economy.
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