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The Economics of Conditional Cash Transfers

Ayona Mitra

Introduction


An initiative first established in Latin America during the late 1990s,

conditional cash transfer (CCT) programs had progressed to be one of the

key social programs in rural regions in and surrounding Mexico. Currently, it

has made its place as a popular social assistance program in over 20

developing countries (including most of Latin America) and some developed

countries. CCTs are those reforms that aim to reduce poverty and inequality

among poor and vulnerable groups via a direct transfer of monetary resources

to them. Their methods involving breaking inter-generational transfer of

disadvantages by providing incentives and investing in human capital

formation i.e., providing support to children by boosting their health and

education circumstances from an early age. Most of these programs use a

combination of geography and a means-testing identification method (used to

determine the eligibility of one for government welfare schemes) to target

households, in particular women and children, provide them with cash

transfers and empower the needy by associating them with public welfare

services. Brazil’s ‘Bolsa Escola’ is at present the largest CCT program in the

world that reaches out to about 14 million families, including young students.

Several debates have been conducted to actually discuss and derive possible

benefits of implementing a CCT program. Literature review and evaluations

from 2 models in Latin America have fairly buried that dispute on grounds that

CCTs are better than unconditional transfers for achieving objectives

economically and politically.


Progresa (Mexico)


The program ‘Progresa/Oportunidades’ initiated in 1997, the first of 2

successful CCT models provided cash payments to families across rural and

semi-rural Mexico. The focus was three-fold: (a) education; (b) health; (c)

nutrition with a feature to give money to mothers particularly because earlier

literature proved that to be crucial for overall child welfare. The parameters in

question and the conditions attached to each of them are as follows.

Education grants

• Given to children from third year of primary school to the end of

schooling.

• Grants increase as children moved to higher grades.

• At higher levels, an increased flow of money to girls relative to boys.

• Cash given to mothers initially and then to their children with time.

Conditions

• The children from the chosen households would have to attend school

regularly and maintain a minimum of 85% attendance.


• The same batch would not be allowed to repeat a grade twice thus

barring a fresh lot from gaining the benefits.


Health & Nutrition grants

• Cash transfers to families that required financial assistance to cover

health maintenance costs, like insurance.

• Provisions for nutritional supplements distribution targeted mainly

towards pregnant women, lactating mothers and young children (under

4 years of age).

Conditions

• All families would mandatorily have to engage in ‘preventative care’

workshops i.e., lessons on how to curb disease prevention amongst

the vulnerable rural population by learning about the symptoms,

diagnosis and causes of diseases and encouraging basic sanitation.

• Mothers have to attend monthly health and nutrition talks.

• Senior school children receiving grants would also be expected to

attend seminars on adolescent themes, sex education, for example.

Evidence of Impact: Most studies in Progresa would look at the differences in

outcomes between the treatment and control groups and separately outline

the short-term VS long-term effects. The impact of this CCT program is

measured along the following dimensions: (a) education and times use; (b)

health and nutrition; (c) household consumption, investment and savings; (d)

gender and demographic; (e) political and environmental.

(a) Education

• School enrolment increased and overall grade repetition went down.

• The number of students who successfully completed years of schooling

went up.

• The impact was greater for those who enrolled at a younger age and

thus had a longer exposure.

(b) Time use

• Study and analysis of random samples chosen from the total

population showed evidence of a decrease in child labor as a result of

the enrolment. Since the condition of the cash transfer required the

recipients to be in school, an income source from CCTs reduced the

need for income from child labor.

• Adult-labor supply did not see a fall comparatively, possibly because

they were required to compensate for the fall in hours worked by their

children to keep up the same income level.

(c) Health & nutrition

• Health care utilization increased along with a consequential decrease

in self-reported illnesses.


• The under-five mortality and disease frequency due to nutritional

deficiencies reduced.

(d) Consumption, investment and savings

• Overall household consumption, in terms of food intake, increased.

• Investment by the rural population in small, mass-friendly businesses

i.e., micro-entrepreneurship and self-employment arose.

(e) Gender

• A key focus in Progresa CCT program, maximum of the transfers were

provided to mothers and girls.

• Two important impacts on the voice of women as a result of these

benefits: improvement in the decision-making power of women within

the household and a fall in domestic violence.

(f) Demography: marriage and fertility

• Increased independence of women could potentially lead to reduced

number of marriages and increased divorces in a male dominated

society, however evidence spoke of increased incidences of the

contrary i.e., more number of marriages/cohabitation.

• Financial stability through cash transfers led to better incentives to

have children and raise a family.

• No changes in fertility of the mothers.

• Girls who grew up during the course of the program delayed marriage

and childbearing compared to earlier cases due to feasible choices of

establishing a job and career.

CCT Model, Columbia

The second most successful model in South America, the ‘Subsidios

Condicionados a la Asistencia Escolar’ (SCAE) CCT program was initiated in

2005 to investigate the impact of a cash transfer scheme in Columbia on the

medium and long-run educational outcomes across varying designs. Through

controlled randomized experiments, the program focused only on education in

secondary schools unlike the Progresa that looked at 2 additional dimensions

like health and nutrition. The groups observed in this model were students

from grades 6-11 in San Cristobal and Suba district of Bogota respectively.

San Cristobal district: ‘Basic/Savings’ Experiment

Outline of the experiment design: Eligible secondary school students from

grades 6-11 were divided into two groups, control and treatment. Two further

sub-branches of the treatment group were looked at, each receiving the

‘basic’ and ‘saving’ treatment respectively. These 2 sub-branches were

revenue-neutral but different in incentives. The control group received no

benefits.


- Basic Treatment involved a financial assistance of $30 to students

every two months on the condition that they would mandatorily enroll in

school and maintain an attendance of 80%.

- Savings Treatment involved a transfer of $20 to every student per 2

months with $10 in savings. The accumulated savings would be given

at the start of the next academic year. This was on the same condition

as the basic treatment.


Suba district: ‘Tertiary’ Experiment

Outline of the experiment design: Similar to the earlier case, the control group

in this experiment received zero benefits. However, the one and only

treatment group were subject to ‘tertiary’ action wherein $20 was given to

eligible students from grades 9-11 every two months. The condition remained

the same as previously. But additionally, a lump sum was offered to the

students on successful graduation and enrolment in tertiary education. Those

who chose not to enroll would still be recipients of this extensive amount but

with delay.


Outcomes of interest and findings

Among the many variables that can be observed and analyzed via this

experiment, 3 medium-term and 2 long-term outcomes are looked at. They

are the following.

(a) Medium-term: on-time enrolment in secondary school, taking the school

exit exam and on-time tertiary enrolment.

(b) Long-term: Extended tertiary enrolment and graduation.


The findings derived individually during both spans of time are as follows.

Medium-term


1. On-time enrolment in secondary school

• Overall a positive outcome. All treatments increased the probability of

enrolment with the highest number recorded in the ‘savings’ treatment

sub-group.

• The increase could potentially be attributed to reasons like less grade

repetitions, lower dropout rates and of course, the incentives in

question.

2. Taking the secondary school exit exam

• This outcome didn’t observe an effect overall. Conditional on

enrolment, none of the treatment sub-groups had a significant impact

on taking the exit examination relative to the control group.

3. On-time tertiary enrolment

• A well-margined increase in ‘good’ quality tertiary institutions following

the savings treatment was observed. However, with the tertiary

treatments only, enrolment increased but in ‘low’ quality schools. This

implied that removing savings constraints might be more important

rather than the incentives.


Long-term: Looking the effect of this CCT program 5-10 years post secondary

school graduation, no substantial effect is seen per se. It is true and validated


that the treatments meted out to all groups and sub-groups did accelerate

enrolment rates at the time with no-benefits receiving control groups slowly

catching up, long-term outcomes could not be determined in terms of these

parameters. If thought consequentially, more enrolment and more successful

completions would eventually lead to greater human capital formation and skill

development, a requirement for sustainable employment in the future.

Conclusion


There is not much doubt that conditional cash transfer programs are

administratively quite extensive and require constant monitoring at each

stage. Ample amount of time is invested in making sure that appropriate

information on the eligibility of households is gathered and screened by local

and union governments. To make sure that the recipients adhere to the

conditions, it is the responsibility of the state to look after the efficient working

of CCT programs. For non-compliance penalties are usually in place that

range from warnings to removal from financial benefits. But even with a 100

successful models built, the moot question still remains. Overall do CCT

programs carry more weight than unconditional ones for achieving objectives?

Studies suggest a favorable answer on economic and political grounds

explained as follows.


Political reasons: CCT programs satisfy people across the political spectrum

for the simple reason that there are ethics attached to the motivation behind it,

governments get into a better shape by carefully planning and executing what

could be one of many viable solutions to inequality and poverty and it is not

just a ‘cash handout’ scheme, the conditionality is contract-based. So the

ability and pathway to gather support from counterparts in governments is

better.


Economic reasons: What is deemed to be socially optimal investments,

private investments in human capital of children can be lower. Often parents

are misguided or they themselves undervalue the returns to such capital and

how it could mold the younger generation and prepare them for adult life. This

is one of the main economic reasons why externalities in investment, in this

case the CCT program from governments are the better choice. It’s not only

optimal for the children and parents alone, but for the society as a whole.

Contrary to all the pluses of a CCT, since it has been examined how big an

initiative this is in terms of planning and execution, there are costs that need

to be incurred. Additionally, if data is not drawn with accuracy about the

eligible households, there could be exclusion of those who need this scheme

the most i.e., an error in judgment. Finally, ethically, it does sound like a move

driven by empathy and willingness to advocate for the poor and vulnerable but

a clash of opinion comes to light when it is also pertinent that social protection

is a basic human right to which no conditions can and should be applied.

Therefore, there will remain a limited hesitancy while considering CCTs based

on its drawbacks but if literature and practical experiments were to be the

base on which the argument stands, governments must consider conditional

cash transfer programs.

 

References


Barrera-Osorio, F., Linden, L.L., & Saavedra, J.E. (2019). Medium and Long

Term Educational Consequences of Alternative Conditional Cash Transfer

Designs: Experimental Evidence from Columbia. American Economic Journal


Parker, S.W., (2017). Conditional Cash Transfers: The Case of

Progresa/Oportunidades. Journal of Economic Literature.

working_papers


Gertler, P. (2004). Do conditional cash transfers improve child health?

Evidence from PROGRESA’s control randomized experiment. American

Economic Review.




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