Measuring the Impact of a Conditional Cash Transfer Program on Consumption Behavior with Propensity Scoring

Abstract

Conditional cash transfer (CCT) programs are quickly replacing old welfare programs because they help the poorest members of society both on the short and long terms. On the short term, the extra discretionary income provided by these programs help participant families meet their pressing basic needs. On the long term, these cash transfers are conditional on participants engaging in health and education-related activities that directly benefit their children, as an attempt to extract the new generation from the vicious circle of poverty. The impact of CCT programs on their main goals (health, education, and nutrition) has already been widely tested and documented. The main purpose of our current study is to assess the impact of a fully implemented program (Bolsa Familia in Brazil) on consumption behavior. This is important for several reasons. First, CCT programs represent a substantial boost in participants’ discretionary income, all funneled into consumption, resulting into a substantial additional demand for certain product categories. Second, critics of CCT programs claim that most of this discretionary income is squandered in superfluous consumption, pushing these poor households into new unsustainable lifestyle. Third, most tests of the impact of CCT programs are based on controlled experiments conducted either before or at the beginning of the program’s full implementation. In contrast, our assessment is done after Bolsa Familia has been fully implemented, which required us to design a natural experiment combining propensity scoring with econometric modeling. Based on this natural experiment, we are able to quantify the effect of Bolsa Familia on its participants and also the incremental demand for various product categories generated by this CCT program. Contrary to what detractors of the program claim, we find that most of the extra cash is devoted to essential goods (food, clothing, etc.) rather than superfluous consumption.