Cash transfers: Beneficiaries don’t blow money on alcohol, cigarettes, etc, data shows

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Published: December 12, 2016 6:33:39 AM

A common argument against cash transfer, especially unconditional cash transfer, is that beneficiaries are likely to spend the amount on “temptation goods”, i.e., goods like alcohol or cigarettes that don’t contribute to improving recipients’ material or social well-being.

Popova and Evans offer three reasons for this (PTI Image)Popova and Evans offer three reasons for this (PTI Image)

A common argument against cash transfer, especially unconditional cash transfer, is that beneficiaries are likely to spend the amount on “temptation goods”, i.e., goods like alcohol or cigarettes that don’t contribute to improving recipients’ material or social well-being. Most of the previous studies on how beneficiaries utilise cash-transfers point at spending that largely improves the household’s material conditions. A new study analysing 30 previous studies on the impact of cash transfers on spending on temptation goods finds that such expenditure did not increase because of the cash transfers; it actually registered a slight reduction in many cases. David Evans of the World Bank and Anna Popova of Stanford University also conducted a meta-analysis—that is, they combined the results from all the studies and looked for a trend—to find that overall, there was a slight dip in spending on temptation goods.

Popova and Evans offer three reasons for this. First, cash transfers could have changed the household’s spending calculations. Before receiving the cash, expenditure on, say, children’s education from the meagre earnings could have seemed pointless. With the extra cash, that may have been brought up the list of priorities. A serious investment in education—supplementing the benefits with money from household income—could have prompted cutting down expenditure on alcohol, cigarettes, etc. Second, it could be the Flypaper Effect, i.e., beneficiaries would have used the transfers for the intended purpose even when there is no one forcing them to. Third, with transfers being mostly made to women, the amount, as studies show, is more likely to be spent on food and children’s health—though another study found transfers to men often meant additions to household assets. With another recent study showing that transfers don’t disincentivise recipients from working, the case for cash transfers just got stronger.

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