What are the impacts of unconditional cash transfers on low-income families?

Responsible researcher: Viviane Pires Ribeiro

Article title: THE SHORT-TERM IMPACT OF UNCONDITIONAL CASH TRANSFERS TO THE POOR: EXPERIMENTAL EVIDENCE FROM KENYA

Article authors: Johannes Haushofer and Jeremy Shapiro

Intervention location: Kenya

Sample size: 120 villages

Major theme: Economic Policy and Governance

Type of Intervention: Impact of unconditional cash transfers on poverty reduction

Variable of Main Interest: Unconditional money transfer

Evaluation method:  Randomized controlled trial

Assessment Context

GiveDirectly ( GD) is an international NGO founded in 2009 whose mission is to make unconditional cash transfers to low-income families in developing countries. GD began operations in Kenya in 2011. At the time of the study conducted by Haushofer and Shapiro (2016), eligibility to participate in the program was living in a house with a thatched (rather than metal) roof. Families were identified through a census conducted with the help of the village elder. After identification, the families were visited by a GD representative, who asked to speak to the transfer recipient in order to collect some demographic data, informing them that they would receive a transfer of KES 25,200 ($404 PPP). A Safaricom SIM card was provided for the recipient to sign up for the M-Pesa application (M, for mobile, and Pesa, for cash) installed on the cell phone's chip. For lump sum recipients, an initial transfer of KES 1,200 ($19 PPP) was sent in the first month after the DG visit as an incentive to register.

Intervention Details

Haushofer and Shapiro (2016) study the impacts of unconditional cash transfers on low-income households in rural Kenya, analyzing economic and psychological outcomes. The research was conducted with the NGO GiveDirectly , during the years 2011 to 2013. Households with a primary female and a primary male member were randomly assigned the same probability of the recipient being male or female. In all treatment families, families were randomly assigned to whether the transfer was delivered as a lump sum or as a series of nine monthly installments. Specifically, 258 of the 503 treatment families were assigned to the monthly condition and 245 to the lump sum condition. However, in the analysis, they only considered the 173 monthly and 193 fixed-amount recipients, who did not receive large transfers. The total amount of each type of transfer was KES 25,200 ($404 PPP).

To study the magnitude of the transfer, 137 families in the treatment group were randomly chosen and informed in January 2012 that they would receive an additional transfer of KES 70,000 ($1,121 PPP), paid in seven monthly installments of KES 10,000 ($160 PPP) each, starting in February 2012. Thus, the transfers previously allocated to these families, whether monthly or lump sum, were increased by KES 10,000 from February 2012 to August 2012, and therefore the total transfer amount received by these families was KES 95,200 ($1,525 PPP).

Methodology Details

The methodology adopted by Haushofer and Shapiro (2016) was a randomized controlled trial. The authors performed a two-stage randomization, one at the village level, resulting in treatment villages and control villages, and the other at the household level, resulting in treatment families and control families. Additionally, within the treatment group, the authors randomized the transfer recipient within the household (wife versus husband), the timing of the transfer (monthly installments over nine months versus a lump sum), and the magnitude of the transfer ( $404 PPP versus $1,525 PPP).

Results

Nine months after the start of the program, the authors found a strong consumption response to the transfers, with an increase in monthly consumption from US$158 PPP to US$193 PPP. The effects of the program on alcohol and tobacco expenditures were negative and insignificant. In relation to assets and durable goods (metal roofs), there was a significant increase in investment when compared to a control group. These investments can be translated, according to the researchers, into an increase in monthly income from agriculture, animal husbandry and businesses, of US$ 16 PPP in relation to a control group.

The transfers did not have major effects on health and educational outcomes. However, they had a considerable effect on psychological well-being. The authors documented an increase in the standard deviation of happiness of 0.16, an increase in the standard deviation of life satisfaction of 0.17, a reduction in the standard deviation of stress of 0.26, and a significant reduction in depression (all measured by psychological questionnaires), but did not find a global effect on levels of stress hormone cortisol, although there are differences in some subgroups.

Public Policy Lessons

The analysis carried out by Haushofer and Shapiro (2016) provides useful policy guidance for governments and other entities that adopt different forms of income redistribution. The results suggest that when policymakers consider the implications of different design choices for unconditional cash transfers, they may reach different welfare conclusions.

The three types of treatment (gender of the recipient, time and magnitude of the transfer) adopted by the authors allow us to speculate on the impacts of unconditional cash transfers on low-income families in rural Kenya. For large transfers, the outcomes are desirable on most measures, including assets, consumption, food security, psychological well-being, and female empowerment (although it does not show large effects on health and education). Monthly transfers are superior to lump-sum transfers in terms of their effects on food security, while lump-sum transfers show larger effects than monthly transfers on asset holdings. When the recipient of the transfer is the woman of the house, the effect of the transfer related to female empowerment and psychological well-being are greater than when transfers are made to the man. 

References

HAUSHOFER, Johannes; SHAPIRO, Jeremy. The short-term impact of unconditional cash transfers to the poor: experimental evidence from Kenya. The Quarterly Journal of Economics , vol. 131, no. 4, p. 1973-2042, 2016.