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The Economics Of Conditional Cash Transfers

By 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 of Applied Economics. https://www.nber.org/system/files/working_papers/w23275/w23275.pdf

Parker, S.W., (2017). Conditional Cash Transfers: The Case of Progresa/Oportunidades. Journal of Economic Literature. https://repository.upenn.edu/cgi/viewcontent.cgi?article=1033&context=parc_ working_papers

Gertler, P. (2004). Do conditional cash transfers improve child health? Evidence from PROGRESA’s control randomized experiment. American Economic Review. http://www.aru-learning.com/images/informacion/Gertler-2004.pdf

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