What have we learned about cash transfers?

Imagine you are asked to write a one-page summary of what we have learned from the vast research on cash transfers (of all sorts) for high-level policy makers – yes, bit of an impossible task! The three of us were recently asked to do this and we tried our best in a short amount of time, with a lot of help from our colleagues. In this post, we reproduce this brief, in which we focus on what we see as the main take-away messages from the research. The actual brief, with an appendix covering ongoing research in DEC at the World Bank, complete with hyperlinks and references for selected studies, is here.

Here are four big-picture messages we put forward...

Conditional cash transfers (CCTs) are part and parcel of social protection strategies in many countries.

CCTs are targeted to poor households, conditional on household investments in education or health (e.g., keep children in school; attend prenatal check-ups; etc.). In this way, they combine a protection goal to reduce current poverty and a promotion one to reduce future poverty by facilitating investments in human capital accumulation. CCTs have been influential in redistributing income to the poor. They have had well-documented impacts on reducing current poverty, increasing school participation, reducing child labor, and improving utilization of health and nutrition services among mothers and children.

While some recent studies have provided cause for optimism on the effects of CCTs on linear growth and stunting for children under five years of age, evidence for longer-term transformative change among program beneficiaries is lacking. Evidence of impacts on final outcomes, such as nutrition among children, learning, and female labor force participation among young adults, is mixed.

It is important to tailor the design of cash transfer programs to the context, such as the conditionality, the size of the transfer, the number (or share) of beneficiaries within each target area, and whether to make them in-kind (food) or cash. Optimal choices of these key design features can maximize the likelihood that cash transfers have positive spillover effects and avoid negative ones, such as increased malnutrition among non-beneficiary children due to increased prices of important food items.

Finally, while CCTs are successful in improving the outcomes they target (through the condition), they can undermine the social protection value of the transfers by denying them to those who fail to satisfy the conditions. Hence, even the best CCT programs need to be complemented with other interventions to form a comprehensive social protection (SP) policy.

Unconditional cash transfers (UCTs) are becoming more popular.

UCTs are increasingly used in low-income settings where conditionalities can be harder to put in place. Recent studies have debunked the stereotypes about cash transfers causing dependency, increasing the consumption of temptation goods, or reducing labor-market participation. Small, frequent, and reliable cash payments to poor households have been shown to cause contemporaneous improvements in multiple domains, such as per capita consumption, savings, nutrition, mental health, teen pregnancies, child marriages, and intimate partner violence.

UCTs are a key tool for social protection responses to shocks such as climatic shocks or the COVID-19 pandemic. With robust and adaptive social protection systems in place, UCTs can be rapidly scaled to broaden coverage and/or increase the transfer size to existing beneficiaries. However, like CCTs, there is insufficient evidence to expect promotion (human capital accumulation or sustained investments) from UCTs in the medium to longer run. The short-term positive effects on a multitude of outcomes can dissipate after the cessation of transfers.

UCTs and CCTs can be deployed together to better achieve the twin goals of current poverty reduction and human capital accumulation.

Many policymakers view CCTs and UCTs as alternatives to each other. However, evidence shows that the two can be combined. Modest UCTs can serve as a safety net for everyone, while being complemented with carefully considered CCTs to achieve desired investments in human capital. This way, households, who, for one reason or another, do not comply with CCT conditionalities, can still benefit from a social safety net. Another version of this idea on which the evidence base is growing are “Cash Plus” programs, which combine UCTs (or labeled cash transfers) with complementary services or interventions to enhance the early childhood impact of the cash transfer by targeting to the critical windows of opportunity (first 1,000 or 2,000 days) and combining it with well-designed behavior change communication (BCC) interventions.

Economic inclusion programs can build on cash transfers to achieve sustained poverty reduction.

The last decade has seen the emergence of yet another approach: targeting the ultra-poor and supporting them with a multifaceted package of interventions that includes cash or asset transfers along with a range of complementary interventions addressing multiple market failures that they face - with the aim of allowing them to escape poverty. A typical program provides a one-off transfer of a productive assets (e.g., a dairy cow) or a lump-sum cash grant, small regular cash transfers (so that the beneficiaries don’t have to liquidate their productive assets to deal with negative shocks), training to acquire skills needed to succeed in the chosen income-generating activity, and psychosocial support in the form of life skills training or frequent visits from social workers – often for a period of 1-2 years. While these programs can be expensive, recent studies have suggested that their effects can be sustained in the longer run, and perhaps even grow. Delivering these programs through government-led cash transfer systems has led to large impacts at low cost, hence very high cost-effectiveness.

How does that sound as a highly condensed summary of the research on cash transfers? Is it fair? What would you tweak it? We would love to hear your thoughts, but here is the trick: if you suggest to add something, then you need to also suggest something to cut...