Conditional cash transfer programs: Worth the price?

EDITOR’S NOTE: How effective are conditional cash transfer programs? Shannon O’Neil, Council on Foreign Relations Douglas Dillon fellow for Latin America studies, discusses in her article on the Latin America’s Moment blog.

In the economic development world, one of Latin America’s claims to fame are its conditional cash transfer programs (CCTs), which provide direct money transfers to low-income families who send their children to school and/or get basic health care. A few of these programs, such as Bolsa Família in Brazil andOportunidades in Mexico, reach millions of families (some 20 percent of the two countries’ households). Others are smaller and more targeted toward the extreme poor, such as Chile Solidario in Chile, Familias en Acciónin Colombia, and Bono de Desarrollo Humano in Ecuador. Most now boast at least a decade in place, providing a track record to test their reach and effectiveness.

One of the CCT programs’ biggest achievements is keeping more kids in school. Studies ofColombia’s, Ecuador’s, and Brazil’s programs all show increases in school enrollment and attendance. The effects on educational achievement (as measured by standardized tests) are more elusive. In fact some reports show students as a whole falling behind, as schools struggle to incorporate the influx of students (some that had dropped out of school and/or that require more concentrated attention to bring them up to grade level). Now with a larger captive audience, the next important, if difficult, step for these governments is to improve the quality of education.

Studies also show CCT programs help reduce poverty and inequality. In the last two decades the number of poor declined sharply, from almost 50 percent to roughly 30 percent of the region’s population. Cash transfers mattered, especially for the extreme poor, where inflows make up fairly large shares of their income (up to 25 percent for Mexico’s absolute poorest). One International Poverty Center for Inclusive Growth study calculates that Bolsa Família lowered Brazil’s poverty rate by 8 percent, and reduced the severity of poverty by even more (21 percent). A separate evaluation of Colombia’s Familias en Acciónrevealed similar results; extreme poverty among participants dropped between 12 and 17 percent.

In addition to poverty, these programs reduced inequality. A study by Rafael Guerreiro Osório, Fábio Veras Soares, Marcelo Medieros, and Eduardo Zepeda, revealed that CCT programs were second only to labor income increases in reducing the Gini coefficients in both Mexico and Brazil.

The effects on healthcare seem to be more mixed. A 2011 evaluation by the International Food Policy Research Institute found Bolsa Família recipients twelve to fifteen times more likely to immunize their children and pregnant women an average of 1.5 times more likely to visit a doctor than their non-participating peers. In contrast, a 2007 report by Brazil’s Ministry of Social Development saw little impact on vaccinations. The difference may in part reflect the expansion of Bolsa Família into areas with few clinics, but the conflicting results leave questions regarding the program’s effectiveness.

What CCT programs don’t seem to do is keep people from working (a somewhat common critique by those who fear that the subsidies reduce the incentives for recipients to get jobs). Studies of Chile and Brazil show the reverse; the programs boosted labor force participation (by 2.6 percent). Another World Bank study shows that Bolsa Família  increased self-employment.

Though a few voices argue that CCT programs provide money for conditions that are already being met (the majority of Latin American children from low-income families are already in school), most researchers find that these countries are getting a substantial bang for their buck. Budgets for even the biggest programs in Brazil and Mexico make up far less than 1 percent of GDP. These targeted transfers are not a panacea for the ills facing so many nations, but by most measures they are a strong step forward, providing immediate benefits to the poor, and hopefully (if complemented by other programs) creating a longer term path for them to become better educated, healthier, and more productive citizens.

Republished with permission from the Council on Foreign Relations. View original article.