Helping reduce poverty in the short- and long-term: The experience of Conditional Cash Transfers

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Helping reduce poverty in the short- and
long-term The experience of Conditional Cash
Transfers

• Ariel Fiszbein
• The World Bank
• Delhi,
• October 24-26, 2007

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Motivation

• Trend toward integrated social programs in
  response to multi-dimensional nature of poverty
• Improving educational outcomes of poor children
  requires actions both on the supply and demand
  side
• Conditional cash transfer (CCT) programs
• Reduce current consumption poverty
• Promote accumulation of human capital, helping
  break a vicious cycle whereby poverty is
  transmitted across generations
• The success of the initial programs (documented
  through rigorous impact evaluations) created
  strong demand.

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Conceptual basis for CCTs

• 1. Why transfers?
• Redistribution justified for equity reasons,
  although generally some efficiency costs
• Distortions from reduced labor supply, and from
  taxes needed to finance the program
• If there are market failures, redistribution can
  lead to improvements in efficiency, including in
  terms of investment in education
• For example, credit market failures.
• 2. Why cash?
• Unless markets are missing, cash transfers are
  more efficient than in-kind transfers or
  subsidies for consumption of a particular good

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Conceptual basis for CCTs

• 3. Why conditions?
• In general, if markets are perfect, conditional
  transfers will be less efficient than
  unconditional transfers. However
• Imperfect private information or misguided
  beliefs (e.g. lack of understanding about returns
  to education)
• Intra-household power relations (e.g. child
  labor, gender biases)
• Externalities across households (e.g.
  skills/productivity, crime/violence, citizenship)
• Political economy considerations ( e.g. education
  as merit good)

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Targeting and consumption poverty

• CCTs have generally been well targeted (Graph)
• Disincentive effects have been small
• Minimal reductions in adult labor supply in
  Mexico and Nicaragua
• Remittances No crowding out of remittances in
  Nicaragua, Honduras, and Mexico
• CCTs have had reduced consumption poverty,
  especially when transfers are large (Graph)
• The medium-term benefits of CCTs may exceed those
  suggested by short-term, static comparisons (e.g.
  investment in productive assets, credit)

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CCTs have had significant effects on school
enrollment and attendance

• Examples from Latin America
• NicaraguaRPS 17.7 points
• HondurasPRAF 3.3 points
• MexicoOportunidades (urban areas) 3 points
• Examples from stipends for girls in secondary
  school in Asia
• Cambodia 22-33 points
• Bangladesh 12 points
• Pakistan 9 points

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especially among children with low propensities
to enroll in school

• Larger program effects in countries with lower
  baseline enrollment
• Impact of CCT on enrollment in primary school is
  6 times as large in Nicaragua as in Brazil or
  Mexico
• Impact of CCT on transition from primary to
  secondary is 2-3 times larger in Cambodia than in
  Mexico
• Larger program effects in transition grades with
  high dropout rates
• Impact of PROGRESA-Oportunidades in Mexico is 4
  times as large for children in 6th grade at
  baseline as children in other grades in primary
  school
• Larger program effects among poorer households
• In Nicaragua, program effect on enrollment is 26
  points among extremely poor households, 12
  points among poor, and 5 points among non-poor
• In Cambodia, the effect of CCT on enrollment for
  children in the first (poorest) quintile is 4
  times that in the fifth (richest) quintile

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CCTs increase school attainment among adults, and
result in increases in wages

• In Mexico, Children who were randomly assigned
  to receive two more years of CCT have
  approximately 0.2 more years of schooling
• If rate of return to schooling is 10 percent,
  this means that, on average, these children will
  earn approximately 2 percent higher wages as
  adults
• Results hold for children who were 13-15 at
  baseline, and who are therefore likely to have
  completed their schooling

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Questions of program design

• Who is the ideal target for a CCT?
• Poor households with human capital shortfalls and
  large returns to human capital investments
• How important are the conditions?
• Apparently very important as they increase
  enrollment above/beyond income effect (more)
• How important is the transfer size?
• Positive but diminishing marginal returns to
  transfer size (more...)

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CCTs and the supply side

• The quality of schools matters for program
  effects
• Mexico larger effects on enrollment when
  class-sizes are smaller, and in regular schools
  rather than the distance learning schools
• Nicaragua larger effects when schools were
  autonomous and had more flexibility to respond to
  changing demand conditions.
• CCT programs by themselves do not lead to
  improved learning outcomes
• Mexico, Cambodia no evidence of improved test
  scores
• Ecuador evidence of improved cognitive
  development among younger children

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CCTs and the supply sideComplementary action

• Poor human capital outcomes are not exclusively a
  result of low incomes and low utilization of
  education or health services
• At the household level, other factors related to
  information or parenting practices may be
  important. Proactive strategies may be necessary
• Follow-up with families (e.g. Chile, Panama)
• Rewarding achievement (e.g. Colombia)
• Rewarding learning?
• At the provider level, insufficient incentives to
  focus on quality, particularly for
  under-privileged students. Conditional grants can
  also be used to change provider behaviors
• Teacher and school incentives (Nicaragua, Mexico,
  Bangladesh)
• School-based management (El Salvador, Nicaragua)
• Contracting out (mostly in health)

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Key messages

• CCT programs should be directed to correct a
  market distortion that results in sub-optimal
  investment in education (both quantity and
  quality).
• In most cases, they complement actions on the
  supply side. Need to think in systemic terms.
• CCT programs have positive externalities on the
  quality of public policies (including
  cross-sector coordination).

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The impact of CCT on enrollment is largest in
countries which had low baseline enrollment rates
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The impact of CCT on enrollment is largest among
poorest households in Cambodia
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CCT benefits are decidedly progressive
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Programs that make larger transfers have bigger
effects on consumption and poverty

• Nicaragua (RPS) Honduras (PRAF)
• (transfer 17) (transfer 4)

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Targets in Mexico and CambodiaImplications for
Efficiency and Equity
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Conditioning the transfer is important for
enrollment/attendance

• Mexico Some households did not receive forms
  necessary to monitor conditions during PROGRESA
  roll-out. Enrollment higher among those who
  received forms.
• Ecuador BDH unconditional, but advertising
  campaign stressed otherwise. Effects much larger
  among households that believed the program is
  conditional.
• Brazil Impact of Bolsa Escola on enrollment 4-5
  times as large as the impact of the rural pension
  (UCT for children co-residing with the elderly)

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How much does the size of the transfer matter?

• A story of diminishing marginal returns to
  transfer size?
• (a) Ex-post evaluations In Cambodia, some
  households received a transfer of 45, others a
  transfer of 60 if they enrolled their children
  in school
• Each dollar of the initial 45 purchased 0.38
  points of increased attendance
• Each dollar of the additional 15 purchased
  only 0.12 points more attendance
• (b) Structural modeling In Brazil, Ecuador,
  Panama, and Nicaragua, a transfer of (say) 100
  to poor households buys significantly less than
  twice as much as a transfer of 50

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