The Impact of Unconditional Cash Transfers on General Welfare and Local Public Finance in Kenya
Providing cash grants to the poor without any strings attached has been shown to have important welfare benefits for recipients, including significant increases in income, assets, psychological wellbeing, and female empowerment. Yet less is known about how this sudden influx of income affects the rest of the village, and in particular, the effects on non-recipients. In western Kenya, researchers are evaluating the impact of unconditional cash transfers, provided by GiveDirectly, on local economic activity, prices, household welfare, fundraising for public goods, and psychological well-being, both in communities where transfers are distributed and in neighboring areas.
Previous research has found that providing cash grants to the poor without any strings attached can have important welfare benefits for recipients, including significant increases in income, assets, psychological well-being, and female empowerment.1 Unconditional cash transfers, which have relatively low administration and procurement costs and allow recipients to identify their own needs, are quickly growing in popularity as a tool for poverty alleviation. Yet little is known about how this sudden influx of income affects the local economy, including non-recipients. Does the injection of funds stimulate wider economic activity or change the price of goods? Do the positive impacts spill over to non-recipients, or alternatively, do cash transfers have negative economic or psychological effects on those who do not receive cash as the result of higher prices or the perception of being relatively less well-off? Answering these questions will contribute to improving the design of cash transfer programs.
The NGO GiveDirectly, the implementing partner in this study, provides large, unconditional cash transfers to poor households in rural Kenya. The unanticipated one-time transfers of approximately US$1,000 correspond to about one year of consumption for recipient households. While GiveDirectly has worked in Kenya since 2011, this study takes place in areas where the NGO has not worked before: three sub-counties of Siaya County in western Kenya, a rural area bordering Lake Victoria. In addition, Kenya offers a unique context to study the effects of cash transfers on local public finance. It has a long history of local fundraising for public goods through meetings called harambees, which may help facilitate the redistribution of income in villages.
Researchers are partnering with GiveDirectly to evaluate the impact of unconditional cash transfers on local economic activity, household welfare, fundraising for public goods, and psychological well-being in communities where transfers are distributed and in neighboring areas. Researchers are conducting a randomized evaluation in 655 villages in rural Kenya. In order to identify the program's effects both within villages and on nearby villages, researchers randomized on two levels, villages and sub-locations (administrative units of about 10 villages each, on average). In "high saturation" sub-locations, a greater number of villages were assigned to treatment status compared to "low-saturation" sub-locations. Based on these proportions, villages within each sub-location were then randomly assigned to the treatment group, in which all eligible households received cash transfers, or to the comparison group. Within treatment villages, GiveDirectly conducted a census to identify all households that met their eligibility criteria: living in a house with a grass-thatched roof. (Researchers conducted their own censuses in all villages to determine eligibility.) The eligible households in treatment villages received a series of three transfers totaling about US$1,000 via the mobile money platform M-Pesa. This is a one-time program, and GiveDirectly will not provide additional financial assistance to households after the final transfer. Researchers will measure changes in local economic activity, including household income, the number of businesses in the community, prices, public finance, and psychological well-being approximately one year after the transfers are complete.
Project ongoing; results forthcoming.
Egger, Dennis, Johannes Haushofer, Edward Miguel, Paul Niehaus, and Michael Walker. "General equilibrium effects of cash transfers: experimental evidence from Kenya." Working Paper, November 2019.
1 Haushofer, Johannes, and Jeremy Shapiro. "Household response to income changes: Evidence from an unconditional cash transfer program in Kenya." Massachusetts Institute of Technology (2013).