Evaluating Indonesia’s unconditional cash transfer programme, 2005‒2006

Abstract

Targeted cash transfer programs have been an important policy tool in developing countries. This paper considers (i) how the timing of transfers affect household expenditure and labor supply responses, and (ii) how household expectations shape our interpretation of those responses. We study these issues in the context of a short-term program that provided quarterly unconditional transfers of 30 USD to over 19 million households in Indonesia. Our empirical strategy relies on nationally representative panel data, differencein-difference reweighting estimators, and the staggered rollout of the second quarterly transfer. On average, beneficiary households that received the full two transfers by early 2006 do not differ from comparable nonbeneficiaries in terms of per capita expenditure growth and changes in labor supply per adult. However, beneficiaries still awaiting their second transfer report 7 percentage point lower expenditure growth and a reduction in labor supply by an additional 1.5 hours per adult per week on average. The expenditure differences dissipate by early 2007, several months after the final transfer was received by all beneficiaries. We also exploit variation in transfers per capita to identify a small marginal propensity to consume out of transfer income (around 0.10). We reconcile the empirical results with the predictions of a simple permanent income model, consider rival (missing) data-driven explanations, and document similar household responses to other transitory changes in income.