It’s All in the Timing: Household Expenditure and Labor Supply Responses to Unconditional Cash Transfers

Targeted cash transfer programs have been an important policy tool in developing countries. This paper considers (i) how the timing of transfers affects household expenditure and labor supply responses, and (ii) how household expectations shape our interpretation of those responses. We study these issues in the context of a short-term program that provided quarterly unconditional transfers of US$30 to over 19 million households in Indonesia. Our empirical strategy relies on nationally representative panel data, difference-in-difference re-weighting estimators, and the staggered rollout of the second quarterly transfer. On average, beneficiary households that received the two full transfers by early 2006 did not differ from comparable nonbeneficiaries in terms of per capita expenditure growth and changes in labor supply per adult. However, beneficiaries still awaiting their second transfer reported a 7 percentage point lower expenditure growth and a reduction in labor supply by an additional 1.5 hours per adult per week. The expenditure differences dissipated by early 2007, several months after the final transfer were received by all beneficiaries. We also exploit variation in transfers per capita to identify a small marginal propensity to consume out of transfer income (around 0.10). We reconcile the empirical results with the predictions of a simple permanent income model, consider rival (missing) data-driven explanations, and document similar household responses to other transitory changes in income.(This abstract was borrowed from another version of this item.)