This paper analyses policies designed to counter poverty and income inequality within a two period overlapping generations model. The baseline is provided by a laissez‐faire regime where income in the second period is determined by the human capital of the agent together with the investment in education in the first period. Within the framework of a balanced budget, two policies are examined; the provision of income support alone and then when this is supplemented by additional education for the poor. The latter policy can lead to greater mean income and less poverty and income inequality compared to laissez‐faire when income is responsive to educational outlay.
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