Cash transfers have gained immense popularity among policymakers as a key for improving the standards of living of the poorest members of communities around the world. They are considered relatively easy to administer, in comparison to subsidies and in-kind transfers, and the general response towards cash transfers, conditional or unconditional, has been positive. A large part of their popularity can be attributed to their strong focus on children’s well-being and human capital attainment, and their ability to target a number of social and economic issues that households face under one policy (income, health, education, etc). However, when evaluating them as a long-term solution to global poverty, the evidence is quite mixed. Albeit being a smart tool to raise the standards of living of the poor in terms of education, health, and income, using them with the hopes of eradicating poverty from communities altogether may be overambitious and policymakers focusing too much on these transfers may be wrongfully selling them as tools of complete poverty eradication.
There is plenty of evidence showing the positive impact that cash transfers have had on various indicators determining the standards of living of poor individuals. Asset accumulation was seen to improve following the receipt of cash transfers. For Mexico’s Oportunidades, a program providing cash transfers conditional on children’s schooling and health, 12% of the cash was used to acquire productive assets (Gertler et al., 2005). Providing cash transfers is a good way of lifting credit constraints of poor households by improving their savings and by providing better access to credit. Cash transfers also provide greater security and certainty in consumption and result in an improved household allocation of expenditure.
Improving schooling levels of children as a way to build human capital has been an explicit goal in many of the cash transfer programs and this has been accomplished quite significantly in almost all the major programs around the world. School enrolments have increased and absenteeism from schools has reduced. In a cash transfer program in Brazil, called Bolsa Familia, the probability of a beneficiary child being absent from school reduced by 3.6% and the probability of dropping out reduced by 1.6%, as compared to non-beneficiaries (Oliveira, 2007).
The evidence on health levels has mostly been positive in most of the programs as well. Generally, according to various evaluations, there was a widespread improvement in the knowledge of health care among the recipients of cash transfers. An improvement in infant care was seen in Latin America, in the form of increased visits to the doctor during pregnancy and after birth (Villatoro, 2005a). The same study showed that there was an increase in vaccinations, a reduction in illness rates, and in some places, maternal and infant mortality was also seen to decrease.
There is no denying the importance of the above mentioned positive effects that the various cash programs have had. However, scepticism towards cash transfers as a solution to global poverty comes in when we begin to consider their longer term impact on “poverty” as a goal. When looking at the literature on the impact of cash transfers on poverty directly in the medium-term, we see mixed evidence. The general view is that although cash transfers are successful in reducing poverty gaps, they are not enough to lift households out of poverty completely i.e. they can reduce the intensity but not the incidence of poverty. Studies have shown that although transfers help reduce household poverty levels, for the most part, they cannot make the households entirely non-poor and their impact on national poverty rates are very low.
There could be various reasons why the impact of cash transfers on poverty has been limited, a major one of which is the issue with the supply of quality public services. In many places, there are supply-side issues with schooling and if those are not addressed and children are not provided with quality schools, cash transfers alone would not be enough to turn a child into a successful income-earner in the long run, enabling him to break out of poverty. Similar supply-side issues are present for health services as well. There is also a good chance of many governments replacing other interventions, like providing quality education and health, by cash transfers since they are easier to administer, instead of using cash transfers as a way of complementing other interventions. This would result in no long run improvements in the standards of living of the poor.
This analysis is not to state that cash transfer programs are altogether failing to have any effect on poverty. They are, for certain, providing a much-needed income support to the poor. Even if the poor are not being pulled out of poverty altogether, a reduction in the poverty gap is still a positive impact to have of a policy and is a good sign. However, just focusing on cash transfers alone is not enough to tackle global poverty levels. Poverty reduction is likely to come about through a collective focus on “redistribution of incomes, assets, and opportunities; pro-poor economic growth; and social provision and protection” (Ehrenpreis, 2006). While cash transfers fulfil the “social provision” part, the rest has to be dealt with simultaneously in order to fight global poverty.
It is essential that, before implementing any cash transfer programmes, the government assesses the surroundings of the poor. If they are residing in areas without access to public services like good schools and hospitals, then the probability of any long-term impact that a cash transfer can have will be reduced. This further stresses the greater focus that should be given to the supply-side of various public services like the quality of education and health services being provided, and on the geographic barriers faced by the poorest. Well-administered schools, improved curriculum and trained teachers are just some of the various provisions needed on the supply side of education in developing countries. For health services, better-equipped hospitals and trained doctors are needed. In terms of geography, it is key that the poor are living in areas where there is sufficient infrastructure in place that allows them to access the facilities being provided by the government, and also access the potential jobs. When these things are in place and human capital growth is on an upward trajectory, there would be a strong need to create jobs that can employ these productive individuals. For more jobs, economic growth would be needed, requiring stability in the macroeconomic conditions of the country.
The key message from all the above is that global poverty reduction would require all-encompassing efforts, having an impact on the various areas of the lives of the poor. There exists no single solution that can alone lift the poor above the poverty lines. Cash transfers are undoubtedly a powerful instrument in handling a few of the key components of poverty reduction i.e. income support and human capital, but they cannot, on their own, finish poverty altogether and bring down global poverty levels. Their goal should not be to serve as a complete solution to poverty; rather, the goal should be to use them as complements to other economic and social policies targeted towards all the components needed for poverty reduction.
- Ehrenpreis, D. (2006). Social protection-the role of cash transfers (No. 8). International Policy Centre for Inclusive Growth.
- Gertler, P. J., Martinez, S. W., & Rubio-Codina, M. (2012). Investing cash transfers to raise long-term living standards. American Economic Journal: Applied Economics, 164-192.
- Oliveira, A. M. H. C., Andrade, M. V., Resende, A. C. C., Rodrigues, C. G., Souza, L. R. D., & Ribas, R. P. (2007). Primeiros resultados da análise da linha de base da pesquisa de avaliação de impacto do Programa Bolsa Família. Vaitsman J, Paes-Sousa R, organizadores. Avaliação de políticas e programas do MDS: resultados, 2.
- Villatoro, P. (2005, November). Estrategias y programas de reducción de la pobreza en América Latina y el Caribe [Strategies and programmes for poverty reduction in Latin America and the Caribbean]. In 31st Regular Meeting of the American Council, Caracas, Venezuela (pp. 21-23).
- Zepeda, E. (2006). Background research for ‘Do CCTs Reduce Poverty?’. One Pager #21, September, International Poverty Centre, Brasilia.