The impact of habits formation over social programs to reduce the poverty in Peru

Renzo Vidal C., Madeherick Bejarano P.


Consumption patterns have a great impact in consumption of low income population. In fact, the Average Propensity of Consume (ACP) in long term is less than 1 for people who are not poor, but is close or above 1 for poor people. This means that customs or habits formation are different for each social stratum. So, will these consumption patterns change in times of economic crisis? Or stay as such despite economic crisis or not. Apparently, these habits would not change, which means that consumption patterns are deeply ingrained in customs. We propose a dynamic general equilibrium model where the impact of habits is diagnosed through the variable (ϕ) and observe the consumption path over time to demonstrate that these habits are not influenced by exogenous supply shock since consumption would not suffer any changes. The effects of disturbances must be distributed with greater persistence along time.1o.

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