Can Conditional Cash Transfers Break the Cycle of Poverty?

The Issue:

Programs that give cash to the poor in exchange for a commitment to keep children in school or provide them with basic medical care have become among the most important anti-poverty programs in some countries around the world. These conditional cash transfer programs have grown from just two, in Mexico and Brazil in the 1990s, to more than 60 programs that cover millions of people around the world. In the last decade, conditional cash transfers have also been introduced in the United States. These programs aim to provide income-support to the poor, while at the same time incentivizing households to build human capital and, eventually, become self-sufficient. However, their effectiveness has been questioned. Do these programs lift recipients out of poverty and help them become self-sufficient?

Programs increase the ability to provide for families with children while also improving their chances to raise the children's educational attainment.

The Facts:

• Conditional cash transfer programs (CCTs) provide monetary transfers to poor families conditional on those households making investments in the education and health of their children. Programs usually include education provisions that require school enrollment and attendance of at least 80 percent of school days. Some programs also include nutrition conditions requiring health check-ups and vaccinations for children. The first programs of this type, PROGRESA and Bolsa Familia were introduced in Mexico and Brazil in the mid-1990s. Today the programs in these two countries have grown from covering a few hundred thousand households to covering 5 million and 11 million, respectively. About 60 programs of this type now exist around the world. (See here).
• While these programs are more prevalent in developing countries, some have also been introduced in the United States. U.S. programs aimed at fighting poverty have typically emphasized eligibility determined by income levels. But in recent years conditionality has been introduced as part of some poverty programs. For instance, starting in the 1990s, many states introduced work requirements as part of Temporary Assistance for Needy Families (TANF) and the Earned Income Tax Credit (EITC), which gives a tax credit only for those working. However, only in the last ten years have conditional cash transfer programs been introduced in the U.S. requiring poor families to make investments in education and health of their children. While meeting work requirements imposed by other anti-poverty programs can depend on many factors beyond the control of individuals, meeting the education and health conditions of CCT programs is much more in control of parents. One example of a conditional cash transfer program in the U.S. is the Family Rewards Program in New York City. The program provided low-income families over $8,700 on average over three years with amounts varying depending on meeting goals for school attendance, standardized test scores, and routine dental care, among others. A rigorous evaluation of the program found that it reduced material hardship and reduced the share of families living in poverty by 11 percent. The program also had positive effects on attendance and student performance for high school students — though not for elementary or middle school students. In addition, it increased the likelihood of graduating high school — especially for those already performing well upon entering high school — and increased the share of individuals conducting preventive dental visits (see here).
• There have been various criticisms of these programs. One question that has been raised is whether the poor are better served by receiving transfers without conditions so that they can decide for themselves how best to use the cash provided. However, there is evidence that unconditional transfers are less effective than conditional transfers at improving schooling outcomes (see for instance a review of studies, an experiment in Malawi and one in Ecuador) A second issue raised is whether these programs can have unintended consequences: that receiving the transfers causes the parents to work less. Yet, there is little evidence that conditional cash transfers cause a reduction in work effort by parents (see for instance a study from Brazil or rural Mexico). Finally, some have argued that the effects are short-term and are unable to break the cycle of poverty.
• Empirical studies of these programs in developing countries find that conditional cash transfers do reduce poverty and increase consumption — at least in the short term. Rigorous evidence on conditional cash transfer programs suggests that they reduce poverty as measured by the poverty count as well as disparities in income. Evidence from Nicaragua, Colombia and Mexico shows that the share of households living below the poverty line fell by 5, 3 and 1 percentage points, respectively (see here, page 108). Evidence from Latin America also suggests that poverty rates would be 13 percent higher in the absence of CCTs (see here). Consumption also increases in Brazil, Colombia, Honduras, Mexico and Nicaragua in households receiving CCTs (see here, page 105). Only the program from Indonesia shows no effects on consumption.
• But whether the programs lead to investments in human capital that help the younger generations escape the cycle of poverty has come into question. While there is evidence that conditional cash transfer programs increase years of schooling even in the very long-term, there is less evidence that this contributes to the quality of learning by students in developing countries. The greatest impacts of these programs are on keeping kids enrolled in school and increasing years of schooling. Studies from around Latin America (Chile, Colombia, Ecuador, Honduras, Mexico and Nicaragua) and Asia (Bangladesh, Cambodia and Pakistan) show that CCTs increase enrollment by between 2 and 31 percentage points (see here, page 128-129). In Indonesia, the PKH cash transfer program halved the share of children between 7-15 years of age who were not enrolled in school. These effects on enrollment translate into more years of schooling for children in households receiving conditional cash transfers even many years after participating in the program. Years of schooling and graduation from high school increase for children who received conditional cash transfers in Colombia, Nicaragua, Mexico and Indonesia even between 6 and 17 years after receiving the cash transfers. However, there is no evidence that the programs improve the quality of learning for those receiving transfers. Evidence for Cambodia, Colombia and Mexico show that student performance in standardized tests was no better for program beneficiaries and those who did not benefit from CCT programs.
• Findings of health benefits from programs that include nutrition conditions are mixed. Research finds that conditional cash transfer programs improve visits to health providers but not necessarily health. While all programs include education conditions, less than half of the programs include nutrition conditions. The programs that condition on nutrition do increase health center visits in the vast majority of programs by between 6 and 20 percentage points. However, there is little evidence of improved nutrition and other health benefits from these programs. One of the few programs showing a positive impact is the Indonesian PKH program, which shows reduced stunting 6 years after the introduction of the program.
• New research is finding that conditional cash transfer programs improve access to jobs and to better quality jobs when the children of participating families grow up. The ultimate goal of the programs is to offer better job opportunities to beneficiaries after receiving more education so that they can eventually become self-sufficient. Conditional cash transfer programs could improve the chances of employment for participants due to their effect on increased educational attainment. In a recent study on a program from Mexico, I find that 17 years after participation in the program beneficiaries were 36.6 percent more likely to be employed than similar people who did not participate in the program (see chart). Importantly, the quality of employment also improved. Beneficiaries were more likely to be employed in the formal sector, more likely receive non-wage benefits and earn higher wages.