Abstract
The effects of conditional cash transfers (CCTs) on poverty and well-being have been widely studied. However, there is limited knowledge on how a CCT should respond to the dynamics of poverty. How should program administrators treat beneficiaries that exit poverty in period t-1, but exhibit a high probability of falling into poverty in period t? This is a relevant, yet unanswered question. This paper provides an analysis of the implications of poverty dynamics in the implementation of graduation strategies of CCTs, taking Mexico’s Progresa-Oportunidades-Prospera (POP) program as reference case. We propose a Markovian transition model that allows to control for unobserved heterogeneity, state dependence, and attrition. The model provides a framework for a generic graduation condition that can be applied to cash transfer programs that follow well-defined eligibility income thresholds. Overall, we find that only one-third of program beneficiaries that were poor in 2002 exhibited low probabilities of becoming poor in 2009–12 and therefore could be regarded as true ‘graduates’ of the program. We also find that the ‘recertification’ process of POP—which takes place every three years—would be more efficient if it took place every 3.7 and 5.1 years in urban and rural areas, respectively.
Highlights
Governments in developing countries have increasingly resorted to cash transfer programs to fight extreme poverty and vulnerability
We adopt a Markovian model of multivariate normal probabilities that allows to estimate poverty dynamics and, eligibility to program treatment while accounting for three important factors: (i) unobserved heterogeneity determining poverty status; (ii) the possibility of selection bias associated with behavioural responses that can lead to state dependence; and (iii) potential bias arising from panel attrition
This, does not undermine the findings of our analysis, as we focus on the implications of poverty dynamics in the implementation of graduation strategies of conditional cash transfers (CCTs), which are based on a set of eligibility criteria
Summary
Governments in developing countries have increasingly resorted to cash transfer programs to fight extreme poverty and vulnerability. Since the early 2000s, conditional cash transfers (CCTs) have expanded rapidly in Latin America to cover, on average, 25% of households living in the region (Ibarraran et al 2017; Nino-Zarazua 2011) By design, these programs aim to tackle the intergenerational transmissions of poverty by providing income support to people in poverty in exchange for regular school attendance of children and periodic health check-ups of household members. We estimate the likelihood of vulnerable but non-poor households becoming poor and eligible to receive a cash transfer To achieve this objective, we adopt a Markovian model of multivariate normal probabilities that allows to estimate poverty dynamics and, eligibility to program treatment while accounting for three important factors: (i) unobserved heterogeneity determining poverty status; (ii) the possibility of selection bias associated with behavioural responses that can lead to state dependence; and (iii) potential bias arising from panel attrition.
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