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The Strictly Conditional Effects of Conditional Cash Transfers

October 22, 2015
The holy grail of poverty policies is an impactful yet sustainable method for improving the quality of life for those who lack resources. Conditional cash transfers (CCTs), which provide money to families in exchange for a change in behavior, have been successfully used in several countries to influence decisions so that poverty decreases from generation to generation.

According to a study done on the Oportunidades program in Mexico, which offered conditional cash transfers for children’s school attendance, labor among boys aged between 12 and 14 decreased by up to 13% due to the program [1]. However, although many CCT programs have been successful in the past, governments must carefully determine whether CCTs are appropriate for their situation rather than use CCTs as a policy tool to spark behavioral change among the poor.

A foundational principle of classical economics is that incentives can be used to influence behavior. A familiar example of this phenomenon in the U.S. is the tax deduction. The federal government gives taxpayers the option to pay less taxes if they spend some of their money in a particular way, such as contributing to a charitable cause or buying a new home. Conditional cash transfers work in a similar way. Rather than allowing constituents to pay less tax, though, governments who issue CCTs give families cash in exchange for a targeted behavioral change. In the spirit of sustainability, this change is usually intended to systematically inhibit “the intergenerational transmission of poverty” [2].

One common target behavior is school attendance for children. There is typically a negative correlation between education level and poverty. For instance, in a 1998 study in Yemen, families were 18% less likely to be in poverty if the person at the head of the household had completed primary education [3]. CCTs used to increase school attendance are meant to educate the young generation of the lower socioeconomic classes so that they can build a career that will support their future families.

The Oportunidades program in Mexico, one of the first conditional cash transfer programs, was established in 1997 and is still in operation, albeit under the new name Progresa [4] [5]. Oportunidades aimed to influence families who had low wealth as measured by housing, education, and other assets [4]. Beneficiaries of the program received conditional payment contingent upon whether children attended school for at least 85% of the school year. Households were also granted a health-related payment as long as family members met certain healthcare requirements such as regular clinical visits [5]. Both of these conditions are designed to promote the wellbeing of children, who will form the next generation of constituents and who will hopefully lift themselves and their descendants out of poverty as a result of their positive upbringing. The program also allowed families to participate in only one part of the program, either the health component or the education component; although this strategy potentially raised participation rates, it could have reduced the positive impact on participating children [6]. The findings that there was a substantial decrease in the labor rate among male young adults and that boys reported greater amounts of time spent on homework demonstrate that this policy had positive effects on the upbringing of affected Mexican youth in poverty.

<p class="BodyB">Oportunidades participation and the change in Mexican poverty level, 1992-2010</p>Oportunidades participation and the change in Mexican poverty level, 1992-2010. Source: UNDP

The observed benefits of CCTs apparently extend beyond improvements in educational metrics. The graph displayed above demonstrates that from the initiation of the Oportunidades program until 2010, a steady decline in the poverty rate in Mexico accompanied the increase in the participation in the program [6]. There is also evidence that CCTs measurably improve the health of participating children. In a 2010 study on the Bolsa Familia Programme (BFP) in Brazil, it was determined that a participating child under the age of five had a 26% higher chance of having a healthy height and weight for his age than a child outside the BFP [7]. Since a child who is healthy will be more able to dedicate effort to learning than a malnourished child, CCTs can help improve educational quality aside from increasing attendance rates.

Indeed, there are still many countries that have low school attendance rates. Considering the myriad examples of positive results, why not use CCTs to combat this problem in all such countries? The problem with this approach is that the positive effects of CCTs on education and health are conditional on high quality public infrastructure in their respective sectors. According to the World Bank, CCTs are effective only if the “‘supply of health and education services is extensive and of reasonable quality’” [8]. One example of a country with a low school attendance rate is India. A 2014 UNICEF report indicates that nearly 12 million children in India, or approximately 6 percent of the school-age population, are of the primary school or lower-secondary school age but do not attend school regularly [9]. CCTs would not, however, be an appropriate policy choice for India because India’s public sector is broken. In fact, since “[p]ublic services are badly planned,” the Indian “middle-class have virtually seceded from public services” [9]. Incentivizing the poor to make use of such dysfunctional services could hardly be expected to provide the desirable benefits of CCTs as previously discussed. Moreover, India’s political system is “notorious for corruption” and for “financial scandals” [8]. If a CCT program were implemented within this political climate, a disaster could ensue. Mexico is a one example of how CCTs can lead to faulty resource allocations - between 2002-2010, “the share of non-poor beneficiaries [of the CCT program in Mexico] increased … from 40% to 61%” [2]. Thus, the CCT program in India could easily exacerbate its corruption problem.

Even in a country with acceptable public educational and health structures in place, the design and implementation of a CCT program is nontrivial. For instance, since CCTs are not meant to substitute for the normal income source of a poor household, the amount of the CCT should not be so large that the adult workers of the household have the option to stop working [10]. Hence, while CCTs have been very successful in several nations, there is no CCT program that can be uniformly applied in every poverty-stricken nation with this high level of success. Like most types of policy, conditional cash transfers require a careful analysis of the circumstances before consideration as a viable solution to reducing poverty. If policymakers follow this detail-oriented approach in suitable environments, programs following the pattern of conditional cash transfers are likely to continue to succeed.


References:

  [1] Behrman, J., Gallardo-Garcia, J., Parker, S., Todd, P., & Velez-Grajales, V. (2011, August). Are Conditional Cash Transfers Effective in Urban Areas? Evidence from Mexico. Retrieved October 17, 2015.

  [2] Conditional Cash Transfers: Have They Gone Too Far? - Inter-American Development Bank. (n.d.). Retrieved October 17, 2015.

  [3] Iqbal, F. (2006). Chapter 3: Education and Poverty. In Sustaining Gains in Poverty Reduction and Human Development in the Middle East and North Africa. Washington, DC: The World Bank.

  [4] A Model from Mexico for the World. (2014, November 19). Retrieved October 20, 2015.

  [5]PROSPERA2015. (2015). Retrieved October 20, 2015.

  [6] Mexico: Scaling Up Progresa/Oportunidades - Conditional Cash Transfer Programme. (2011, November 1). Retrieved October 20, 2015.

  [7]Paes-Sousa, R., Santos, L., & Miazaki, E. (2011, April 29). Effects of a conditional cash transfer programme on child nutrition in Brazil. Retrieved October 17, 2015.

  [8] Biswas, S. (2012, November 28). Will cash transfers work in India? - BBC News. Retrieved October 17, 2015.

  [9] All Children in School By 2015 Global Initiative on Out-of-School Children: South Asia Regional Study Covering Bangladesh, India, Pakistan and Sri Lanka. (2014, January). Retrieved October 17, 2015.

  [10] Levy, S. (2015, May 21). Is social policy in Latin America heading in the right direction? Beyond conditional cash transfer programs. Retrieved October 17, 2015. 

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