CONDITIONAL & UNCONDITIONAL CASH TRANSFERS

1 CONDITIONAL &. UNCONDITIONAL . CASH TRANSFERS . Kathy Lindert, World Bank Social Safety Nets Core Course December 2013. 1. OUTLINE. What, Why, and When to Use Cash? Types of cash transfer programs Design & Implementation 2. WHAT ARE CASH TRANSFERS ? Cash transfer programs provide cash assistance to the poor and certain vulnerable groups would could fall into poverty Objectives: Increase the incomes of the poor Help individuals and families cope with the consequences of shocks Facilitate government reforms ( , consolidation of other social programs; compensatory measures for other reforms such as energy subsidies). 3. WHY CASH?

2 1. Cost Effective (supply-side factors). Can be cheaper vehicle to deliver benefits than in -kind benefits ( , food). 2. Consumer choice (demand-side factors). Because cash doesn't distort consumer preferences or presume to know what the individual families need. 4. WHEN & WHEN NOT TO USE CASH. AS PART OF THE SAFET Y NET. When is Cash Appropriate? When is Cash Inappropriate? Situations of Chronic When supply of essential poverty goods disrupted ( , Situations of Shocks wars, natural disasters). Emergencies with adequate When administrative food supply Transitory shocks targeting is not possible When delivery of benefits Shallow financial markets feasible: (hard to move cash).

3 Poor can access financial When safety net is facilities (permanent or funded with in-kind mobile). Food is available contributions ( , food aid). 5. OUTLINE. What, Why, and When to Use Cash? Types of cash transfer programs Design & Implementation 6. T YPES OF CASH TRANSFER PROGRAMS. poverty -Targeted Programs ( Last Resort Programs ). UNCONDITIONAL Cash TRANSFERS (UCTs). CONDITIONAL Cash TRANSFERS (CCTs). Categorical Programs: Social Pensions (non-contributory pensions to the elderly). Disability assistance Family & child allowances (Unemployment assistance). Near Cash Benefits: Food stamps Other vouchers 7. TARGETED CASH TRANSFERS : GUARANTEED MINIMUM INCOME.

4 PROGRAMS (GMI). EXAMPLES: Objectives: Guarantee a minimum income for poor households below an income threshold Most OECD. countries Benefit levels: Generally equal to the difference between monthly household income and the threshold, Most ECA. but vary according to household size countries (EU. new member states, UNCONDITIONAL (usually no co-responsibilities) Caucuses, Balkans). Coverage: A safety net for the poorest. In practice, most cover less than 5% Some LICs: ( , Kyrgyz Targeting: Usually based on income and asset testing Republic , Moldova ). by social workers through social welfare offices Complementary to other social protection China (Dibao program).

5 (pensions, unemployment benefits, family allowances). 8. GMI PROGRAMS: SIMPLIFIED ILLUSTRATION OF. BENEFITS CALCULATIONS. Actual pre-transfer income Minimum Subsistence Level of Income There are Benefits vary by distance many ways to to minimum subsistence level complicate a program 9. TARGETING ACCURACY OF GMI. PROGRAMS IN ECA (LRSA). Usually very well targeted (but also with very low coverage). 10. Source: World Bank estimates from ECA SPEED database (2013). TARGETED PROGRAMS: CONDITIONAL CASH TRANSFERS . Twin objectives: EXAMPLES: Most countries in Immediate poverty relief through provision of LAC. cash TRANSFERS Long-term poverty reduction by linking Several TRANSFERS to incentives for investments in countries in East human capital (co-responsibilities) Asia & South Asia Principle of Shared Responsibility Several Give cash stipend to the poor countries in Africa Poor need to ensure they carry out co- responsibilities Several countries in ECA.

6 Targeting: Usually means-tested or proxy means-tested Several OECD. Often in combination with geographic countries targeting Benefit levels and coverage vary 11. CCTs: MENU OF CO-RESPONSIBILITIES. ( SOM E E X A MP LES P ROG RA MS VE RY DI VE RSE ). Education Health Visits Participate in Workshops / Productive (Enrollment, School (prenatal, vaccines, Sessions with Activities / Other attendance) child growth) Promotores *All LAC countries * , Brazil, Chile, *Chile Solidario Often as with CCTs Colombia, Ecuador, (tailored family complementary Honduras, Jamaica, contract; meetings services (not *Macedonia, with social workers) conditions).

7 Romania, Turkey Mexico, Panama, Peru *Colombia, Mexico, *Cambodia, Panama (workshops) *Brazil, Mexico, Pakistan, The * Kazakhstan, Turkey *The Philippines Ecuador Philippines (Family Development *Kazakhstan *Kenya * The Philippines Sessions). *India, China12. CCTs HAVE SPREAD TO OVER 40. COUNTRIES AROUND THE WORLD WHY? Countries with CONDITIONAL Cash Transfer Programs 1997 2010. Why So Popular? 13. PROVEN RESULTS: CCTS HAVE BEEN EXTENSIVELY. EVALUATED. Among the most studied of all social programs Hundreds of studies, including academic Widespread media scrutiny 14. PROVEN RESULTS OF CCTS: SUMMARY OF IMPACTS. Extensive coverage in many cases Social Inclusion Bringing poor to formal economy, identity & use of services Good targeting accuracy (high share of benefits to poor).

8 poverty & Strong in many countries Inequality Impacts Redistributive impacts depend on size of transfer, coverage of poor Labor + Positive Substantial reduction in child work Modest or no impacts on adult work effort (may LFP). Economic Incentives Households invest part of the transfer (income-generating). enrollment, attendance (bring the kids to school). Education drop-out (keep them in school longer). Impacts But less evidence of impacts on learning & test scores (supply-side issue; quality of education system). Some evidence of impacts on malnutrition & food cons. Food, Nutrition, More use of health services, especially among poorest Health Impacts Some evidence of lower morbidity & reduced child mortality Some evidence of higher detection of breast cancer & diabetes Improvements in receptive language (Nicaragua).

9 Encouraging effects on Memory gains (Ecuador). Early childhood 15 Socio-Emotional (Ecuador). Development Fine Motor Skills (Ecuador). PROVEN RESULTS OF CCTs: FOR A RELATIVELY LOW COST. Total costs of CCTs: About of GDP for larger programs CCTs often replace more expensive, badly targeted programs (fiscal consolidation). Countries spend far more on regressive programs: , 4% of GDP on deficits in pension systems (which largely benefit higher-income people). Administrative costs: Around 10-12% for most mature, large CCT. programs Start-up costs can be much higher: For example, in Mexico, administrative costs of beneficiary selection fell from 61% in first year (1997) to 3% in 2001.

10 16. POLITICAL APPEAL. OF SHARED RESPONSIBILIT Y . Philosophical appeal for social compact along the political spectrum but with nuanced interpretations . CCTs viewed as less assistencialista by both sides Left: Right: . Social debt to the poor Not so expensive (cost/GDP). Structural impacts on poverty Not just a cash handout Conditionalities as basic rights Conditionalities as contracts Broad political support for CCTs by parties along political spectrum in many countries: CCTs introduced & supported across political parties & changes in administration in Brazil, Mexico and elsewhere 17. ANOTHER ATTRACTION OF CCTs: CONSOLIDATING & COORDINATING.