The previous post in this blog discussed the positive dynamic effects of conditional cash transfer (CCT) programs in Mexico and Nicaragua – in particular on asset accumulation and the incidence of entrepreneurship by the rural poor. Jed is right to assert that these are exciting findings as they move us beyond the main raison d’être of CCT programs: short term poverty reduction and investment in the next generation. If, in fact, these programs provide a path out of poverty for the families receiving the transfers and an opportunity to graduate successfully from these programs, this is a much better outcome. Programs that supplement cash transfers with some lump sum transfers for productive investments, programs that supplement grants and loans for microenterprises with small cash transfers, and both types also providing training are gaining ground in the developing world and, as Jed points out, we should have much more evidence on this topic even within the next few years.
However, interventions, programs, and policies that increase income among the poor can also cause substantial improvements in some outcomes, perhaps most visibly in health. It’s been more than 15 years since Pritchett and Summers published the catchy “Wealthier is Healthier” paper, but evidence suggesting that exogenous increases in income can improve a variety of health outcomes both for adults and for their children (and their unborn children) has been accumulating at a faster pace recently.
The latest example comes from Hoynes, Miller, and Simon (2012), an NBER working paper that examines the effects of the Earned income Tax Credit (EITC) in the U.S. on the incidence of low birth weight. EITC is a refundable tax credit for poor families with children, meaning that poor households get a check from the government for the full credit they’re due under the program even if they have no tax liability. The average payment of $2,563 per recipient in 2008 is large relative to the incomes of the recipients, who qualify for the credit if their adjusted gross income and earnings income is less than approximately US$40,000 (depending on the number of qualifying children). I had not realized that EITC had become the most important cash transfer program for such families in the U.S. since the dismantling of the old welfare system under Bill Clinton.
Using the exogenous differential increases in income based on family size that were generated by several expansions of the EITC program, the authors find that an increase in income of $1,000 induced by the program reduces the incidence of low birth weight by 7 to 11% (or about one percentage point out of a mean of approximately 10%) among single mothers with low education levels (less than 12 years). The effects are larger for African American mothers. The evidence suggests that these improvements may have been caused by the mothers undertaking healthier behaviors, such as an increased likelihood of going to prenatal visits (perhaps also starting these visits earlier) and reduced drinking and smoking. The authors admit that their channels analysis is speculative (and it is always difficult to identify channels without the aid of specially designed experiments) and the effects on these channels are small, so it is hard to discern how much of the effect may be accounted for by these channels. But, given that low birth weight is a relatively rare event in the U.S. (around 7-10%), behavior change within a small but particularly vulnerable group could cause significant improvements.
The authors talk about the rarity of quasi-experiments that identify exogenous changes in income and cite Almond and Currie (2011), who state that “It is however, remarkably difficult to find examples of policies that increase incomes without potentially having a direct effect on outcomes.” This is perhaps where the recent studies of cash transfer programs in developing countries may come in handy: with experiments causing exogenous increases in income, researchers are starting to examine the effects of these programs both on the health of adults as well as their children.
In Malawi, where we ran an experiment comparing a CCT program (conditioned on school attendance) to an unconditional cash transfer (UCT) program with no strings attached, we show that increases in income under the UCT arm caused large improvements in adolescent mental health (forthcoming in the Journal of Human Resources) and decreased the risk of sexually transmitted diseasesamong adolescent girls (gated, Lancet 2012). The effects on mental health seemed to be due partly to increased consumption, leisure, and family support for education while the reduction in the risk of sexually transmitted infections seemed related to choosing safer (younger) sex partners and having sex with them less frequently. The girls in the UCT arm were also substantially more likely to delay marriage and pregnancy (gated, Quarterly Journal of Economics 2011; ungatedhere), which may improve outcomes for their children in the future. [Similar findings are foundin the U.S.:Hoekstra and Hankins (Journal of Human Resources 2011) showing that single women who win the lottery in Florida delay marriage as a result.]
That final question of whether simple cash transfers to young women could not only improve their long-term welfare but also improve the lives of the next generation is a question that we are currently trying to answer using the same experiment in Malawi. Five years after baseline and almost three years after the end of the two-year cash transfer experiment, many of the school-age girls are now married and have children. We are currently collecting data to see whether the short-term impacts are translating into better labor market outcomes, more empowerment in their lives, happier marriages, and more life satisfaction. We are also collecting data from their children to see if they are healthier (anthropometric measurements) and have improved early childhood development outcomes. A growing number of similar studies should contribute to the literature that examines the effects of social safety net programs (CCT, UCT, or other) on not only asset accumulation and growth, but also on health and its intergenerational transmission – somewhat unanticipated benefits from such programs.