Economic shocks, health, and social protection: The effect of COVID‐19 income shocks on health and mitigation through cash transfers in South Africa

COVID‐19 caused an unprecedented health and economic crisis. Nation‐wide lockdowns triggered major economic disruptions across the world. We provide evidence of the impact of these extreme economic shocks on health outcomes across wealth levels. We further identify if cash transfers can mitigate the negative health effects for the most economically vulnerable. The study focuses on South Africa, an Upper Middle‐Income Country with high levels of inequality, a large informal labor market and with low levels of social welfare. Using difference‐in‐difference estimation (DD) on a longitudinal sample of 6437 South Africans, we find that the lockdown income shock significantly reduces health by 0.2 standard deviations (SD). We find no difference of the effect across wealth quartiles. Exposure to a cash transfer program mitigates the negative health effects for recipients in the lowest wealth quartile to 0.25 SD compared to 0.4 SD for non‐recipients. Full mitigation occurs for individuals exposed to an on average higher scale‐up of the cash transfer program. Our analysis shows that a lockdown induced income shock caused adverse health outcomes; however, a pro‐poor cash transfer program protected the most economically vulnerable from these negative health effects.