Research Project
Are CCts effective to alleviate poverty and inequality?
Over the last decade or so, Conditional Cash Transfer (CCT)programs have proliferated in Latin
America and [Link] are designed to reduce poverty, both in the short and the long term.
Conditional cash transfers are programs that transfer cash, generally to poor households, on
the condition that those households make pre-specified investments in the human capital of
their children. Countries, particularly in Latin America, have been adopting or considering
adoption of CCT programs at a prodigious rate, with CCTs in some cases the largest social
assistance program in the country. CCTs represent the best means of redistribution within
society when two broad sets of conditions are met: first, when poor households do not
sufficiently invest in the human capital of their children and, second, when political realities
necessitate that redistribution be conditioned on good behaviour, rather than delivered as
unconditional transfers.
The program fights poverty in two ways. One is straightforward: it gives money to the poor.
This works. And no, the money tends not to be stolen or diverted to the better-off. Brazil
and Mexico have been very successful at including only the poor. In both countries it has
reduced poverty, especially extreme poverty, and has begun to close the inequality gap.
The ideas other purpose to give children more education and better health is longer
term and harder to measure. But measured it is Oportunidades is probably the most-
studied social program on the planet. The program has an evaluation unit and publishes all
data. There have also been hundreds of studies by independent academics. The research
indicates that conditional cash transfer programs in Mexico and Brazil do keep people
healthier, and keep kids in school.
In Mexico today, malnutrition, anemia and stunting have dropped, as have incidences of
childhood and adult illnesses. Maternal and infant deaths have been reduced.
Contraceptive use in rural areas has risen and teen pregnancy has declined. But the most
dramatic effects are visible in education. Children in Oportunidades repeat fewer grades
and stay in school longer. Child labor has dropped. In rural areas, the percentage of
children entering middle school has risen 42 percent. High school inscription in rural areas
has risen by a whopping 85 percent. The strongest effects on education are found in families
where the mothers have the lowest schooling levels. Indigenous Mexicans have particularly
benefited, staying in school longer.
Can all Cash Transfers Reduce Inequality?
There is an extensive list of studies showing that CCTs reduce poverty, improve education and health
outcomes, and alleviate various other sufferings of the poor, such as child labour and child
mor1tality. There is also a heated debate on whether cash transfers should be conditional or not.
However, not much has been discussed about their impact on the2 unacceptably high income
inequality that has tormented Latin America for centuries. A recent paper examines the impact of
such programmes on inequality
The three countries currently applying the best-known CCTs, i.e., Brazils Bolsa Famlia, Chiles Chile
Solidario, and Mexicos Oportunidades. These three countries also happen to have solid national
statistical systems and household surveys covering periods of reference before and after
implementation of their respective CCT programme, which allows good impact evaluation.
These programmes differ from one another in several ways. Bolsa Famlia and Oportunidades are
both large programmes, covering respectively 11 and 5 million beneficiary households in 2004, but
they diverge in the way targeting takes place. While Bolsa Famlia is a highly decentralised
programme where targeting is the responsibility of municipal governments, Oportunidades
undertakes massive surveys of poor areas to choose the target population through a much more
centralised mechanism. By contrast, Chile Solidario is a small programme covering only about
225,000 households. It targets the extremely poor through a national system that registers
beneficiaries on the basis of intense monitoring of families conducted by social workers.
The impact of CCTs on inequality can be gauged from the most widespread measure of income
distribution, namely, the Gini coefficient. Total household income derives from several sources:
labour, pensions, social security and CCT transfers, among others. Changes in the Gini coefficient can
be broken down into changes in each income component. How much any given component actually
contributes to the total change in inequality can in turn be indicated by the change in inequality of
that component.
All three CCTs examined show outstanding targeting results. Their concentration coefficients are
close to 0.5, i.e. nearer the perfect pro-poor coefficient of -1 and far from the least pro-poor, +1.
This
can also be seen in the diagram, which shows concentration curves for the CCT component of total
income in each country. For reference, the graph also shows the 45o degree line that assigns
the same income to everyone in the population. Since all three concentration curves pass far above
that line, the implication is that CCTs are transferring income to the poorest, thus reducing
inequality. Remarkably, despite differences in the targeting mechanism, the effectiveness in
reaching the poor is similarly high in the three programmes considered.
The reduction in inequality produced by Chile Solidario had only
a small impact, changing a meagre 0.1 point in the Gini coefficient. Inequality in Mexico and Brazil,
on the other hand, fell by 2.7 points. The key to understanding these results can be found in the
share of total income that such transfers represent. The well-targeted income transfers of
Oportunidades and Bolsa Famlia are sufficiently large to produce a significant reduction in
inequality, even though they are small (close to 0.5%) in relation to total national household income
in Brazil and Mexico. By contrast, the transfers of Chile Solidario are so small (less than 0.01% of
total household income) that even with very good targeting they cannot make a dent in inequality.
Much remains to be discussed about CCTs, not least whether transfers should be targeted or
universal and whether they should be conditional or unconditional. This brief analysis of three
conditional cash transfer programmes and inequality suggests two particular issues for further
discussion: (i) the choice among alternative ways to design an effective targeting mechanism; and ii)
the optimal scale and income-targeting threshold that can ensure a meaningful impact on inequality.
Conditional cash transfers are programmes that transfer cash, generally to poor households,
on the condition that those households make pre-specified investments in the human capital
of their children. Countries, particularly in Latin America, have been adopting or considering
adoption of CCT programmes at a prodigious rate, with CCTs in some cases the largest
social assistance programme in the country. CCTs represent the best means of
redistribution within society when two broad sets of conditions are met: first, when poor
households do not sufficiently invest in the human capital of their children and, second, when
political realities necessitate that redistribution be conditioned on good behaviour, rather
than delivered as unconditional transfers.
Most CCTs seek both to reduce consumption poverty and to encourage investments in the
education and health of children. Analysis into the impact these programmes have had on
their target populations produced the following key findings:
CCTs have improved the lives of poor people: transfers generally have been well
targeted to poor households, have raised consumption levels, and have reduced
poverty - by a substantial amount in some countries
CCT programmes have provided an entry point to reforming badly-targeted subsidies
and upgrading the quality of safety nets
CCTs have led poor households to make more use of health and education services,
yet the evidence on improvements in final outcomes in health and education is more
mixed.
CCT programmes are just one option within the arsenal of social protection programs that
can be used to redistribute income to poor households, but they have proven to be a useful
tool in improving the lives of many. Policymakers seeking to design and implement a
conditional cash transfer programme should address the following issues:
Targeting: A CCT should be designed to target poor households that under-invest in
the human capital of their children. This involves first targeting families based on
poverty and second identifying families that have children at school age or perhaps,
more narrowly, those that have children transitioning from primary to secondary
schooling.
Appropriate conditions and scope of transfer: The impact of CCT programs on
service use cannot be explained by the cash component of the program alone, the
conditions and the size of the transfer are important. The conditions must provide the
appropriate incentives to improve nutrition and health, while the size of transfer
should be calculated to provide maximum benefit without triggering negative trade-
offs or waste.
Entry and exit rules: These are necessary to avoid confusion among prospective
beneficiaries and to minimise the potential for manipulation, abuse, and unintended
incentive effects
Complementary interventions: CCT and other cash transfer programs should be seen
as complements, rather than substitutes, addressing different household
characteristics.
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programme-bolsa-familia-transfer-system
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