Emergencies like pandemics, natural disasters, and economic crises test a government’s resilience and preparedness in supporting its population. How can governments best distribute aid to citizens? In countries with established financial infrastructure, such as the U.S., governments can send money directly to citizens. But in many countries, strong financial connections between the government and individuals may not exist. In these contexts, what can governments do?
Our research from Ghana shows that in-kind transfers through utilities allow governments without direct, established financial relationships with their citizens to quickly and broadly provide aid to citizens, but create new concerns about who benefits most from such transfers.
During the COVID-19 pandemic, the government of Ghana used the connections of existing public utilities to provide in-kind transfers to citizens in the form of electricity and water subsidies. Electricity transfers took the form of credit on customers' electricity accounts. We surveyed 1,245 people in urban Accra, Ghana’s capital, to examine whether in-kind electricity transfers:
- reached people quickly and effectively,
- are valued by recipients,
- benefited some socio-economic groups more than others, and
- impacted government support in the months leading up to Ghana’s presidential elections in December 2020.
Providing relief through electricity transfers allowed households to begin receiving relief quite quickly - within two months of the first COVID-19 cases in Ghana. Our findings reveal that people tend to consider an in-kind electricity transfer to be as good as - if not better than - an equivalent amount of cash. In-kind electricity transfers allow recipients to circumvent the high transaction costs associated with purchasing electricity, provide a useful savings device, and many people indicated that they would have used an equivalent cash transfer to buy electricity anyway.
But the program’s design and implementation were largely regressive: they may have been more beneficial for wealthier households than for poorer ones. The program relied on past electricity expenditure to calculate the transfer amount for each household, which meant the wealthiest households were eligible for the largest amount of relief. Poorer households are also more likely to share a meter, further reducing the transfer going to each household. In addition to this design regressivity, poorer households were also less likely to receive any electricity transfers. A key reason for this is that many poorer households pay for electricity via a landlord or another intermediary, meaning they did not directly receive electricity transfers. Over 30% of households reported never receiving any transfer over four months into the program.
Despite these issues, the program was broadly popular. We find evidence that transfer receipt increased support for the incumbent party ahead of national elections, a potentially important effect given the ultimately small margin of victory for the incumbent party.
Why it matters
Many of the issues we identify through this study have broad relevance. In several countries of the world (both high- and low-income economies),
- There are people who access utilities through landlords rather than the utility directly, and more generally who rely on intermediaries for access to public goods and services;
- There are people who are not connected to the electricity grid or otherwise lack connections to the financial system, which precludes them from receiving transfers through these channels; and
- There is limited financial infrastructure for the government to make rapid cash payments to households.
Many low-income countries simply do not have the infrastructure to provide immediate and broad cash assistance to their citizens. These limitations could be devastating during crises like the COVID-19 pandemic whose effects are still being experienced by economies the world over. But, surprisingly, while public utilities are typically limited in scope - they generally only provide electricity or water - they actually have the existing infrastructure of established financial relationships with customers to provide an important social safety net. Furthermore, many economists deem cash transfers as the most effective method to support populations in need. However, the evidence from Ghana shows that the absence of a direct financial relationship between the government and population need not reduce efficiency of government transfers. Households may value in-kind aid nearly as much as cash, meaning public utility subsidies can provide an efficient and effective safety net.
What’s next
There is scope for policymakers to learn important lessons from our study of the Ghanaian context. Disbursing aid to eligible households via an existing utility can enable the government to rapidly reach recipients with whom they are not directly connected. But governments should consider measures to avoid capture of transfers by intermediaries. In addition, uniform in-kind transfers might reduce regressivity in transfer amounts, ease transfer implementation, and promote transparency for recipients. Finally, as with any transfer program, governments must consider how it is paid for and how those costs are distributed. Further research is needed to determine whether the benefits of a government electricity transfer outweigh its costs during an economic crisis, when compared with both a cash transfer or no electricity relief program at all.
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