Children who are engaged in work rather than attending school fail to accumulate human capital. This
has implications at the personal level as well as the economy wide level, since education contributes to
labor productivity. We examine the consequences of not sending children to school with regard to
economic growth and income inequality and assess the trade-off between child labor and human capital
formation. A dynamic computable general equilibrium (DCGE) model applying a 2000 SAM for
Tanzania is used to evaluate the quantitative long-term effects of increased school attendance on
overall economic growth and individual welfare. A particular feature of the Tanzania SAM is the
explicit consideration of a child labor market, which enables us to analyze child labor issues. In order
to get an insight in how child labor affects the economy, we simulate a government program that aims
at increasing primary school enrollment, to reduce the amount of child labor by 50%. We find that an
increase in human capital formation through the reduction of child labor in the long run leads to higher
economic growth rates and increases household incomes in a Pareto sense. The results show that the
positive effects of enhanced human capital formation are rather moderate in terms of the distribution of
the gains from economic growth and hence income inequality does not change substantially.