Economic Issue of the Day
Philippine Institute for Development Studies S u r i a n s a m g a Pa g -a a ral Pangkaunlaran ng Pilipinas
Vo l . V I I N o . 3 ( J u n e 2 0 0 7 )
Conditional cash transfers: social assistance and human development combined
C
onditional cash transfers (CCTs) are cash transfers to eligible beneficiary households in exchange for some conditionalities geared toward improving their children’s human capital. The conditions are verifiable actions such as school attendance or use of basic preventive health care and nutrition services. In this sense, cash transfers are used to induce beneficiaries to send their children to school or bring them to health centers on a regular basis.
CCT as social safety net and conduit of human development CCT belongs to the family of social assistance or safety net programs.1 Like the usual cash transfer program, it provides assistance in the form of cash to poor or vulnerable households or individuals. It is meant to increase the households’ real income, thus helping extremely poor families meet minimum levels of consumption. In a CCT program, beneficiaries have the discretion on how to use the cash. However, there is a string attached to the receipt of the cash. Beneficiaries are expected to comply with certain conditions as prerequisite for receiving the transfer. The conditions may vary from one country to another, depending on the desired outcomes that range from increased food consumption and dietary quality to reduced stunting to increased utilization of preventive health services (e.g., immunization, micronutrients supplementation, growth monitoring, etc.) to increased school enrolments of the poor, lower drop-out rates, and reduced child labor. For cash transfers aimed at health and nutrition outcomes, receipt of transfer is contingent upon compliance of participating household members to having a predetermined number of health center visits. In contrast, cash transfers aimed at education _____________________ Noncontributory transfer programs, generally financed from government revenues, aim to protect individuals or households against either a chronic incapacity to work and earn (chronic poverty) or a decline in this capacity due to adverse events such as economic and political crises, bad harvest, sudden death of a breadwinner, and the like (transient poverty). 1
outcomes require school enrolment and regular school attendance. In both cases, the conditions are envisaged to improve the well-being of the beneficiaries and to empower the young and enhance their potential to earn income in the future. CCT programs are one of the few successful programs to combine social assistance with human development (Box 1). Linking cash transfers to conditionalities tied to investment in human capital makes a double-edged tool in fighting poverty and inequality in the short and long term. Thus, any CCT program has dual objectives: immediate poverty reduction through cash transfers, and longer term poverty reduction through human capital formation. Nevertheless, it should be noted that CCT programs are not a panacea against poverty and inequality. They should, on the whole, form part of a comprehensive socioeconomic policy strategy. Moreover, the success of these programs heavily depends on the availability and quality of health and education services.
Why cash, not in-kind transfers? From the perspective of economic efficiency, cash transfers are deemed to be superior because they do not distort prices directly unlike in-kind transfers which effectively lower the price of the transfer good for the poor. CCT also involves lower transactions cost because they do not necessitate transportation and logistical arrangements for handling and storing of commodities that inkind transfers entail. Further, cash transfers give beneficiaries greater discretion and choices in allocating the money, be it on food consumption, clothing, housing or other needs. Left to themselves, beneficiaries know better what their own needs are and so, cash transfers also address the issue of information asymmetries.
What are the conditions for? Social services are provided free of charge by the government but consumption of the same is associated with out-of-pocket cost (e.g., school supplies and materials, textbooks, uniforms, daily allowance, transport, and medicines) as well as with
Economic Issue of the Day
CONDITIONAL CASH TRANSFERS
Vo l . V I I N o . 3 ( J u n e 2 0 0 7 )
Box 1. Synergy between social assistance and human development exemplified Evaluations of existing CCT programs in Latin America where they originated confirm the positive impact of these programs on reducing poverty and on building and enhancing human capabilities. In particular, Mexico’s Progresa1 (now Oportunidades), Nicaragua’s Red de Proteccion Social (RPS), and Honduras’ Programa de Asignacion (PRAF) have managed to assist more than 50 percent of the poorest 30 percent of all households. In terms of human development, Progresa has been effective in bringing about increased school attendance of both boys and girls in primary and secondary school, increased overall educational attainment, and reduced child labor. In contrast, Nicaragua’s RPS has caused an increase in primary school enrolment rates for the target population between 2000 and 2003. Furthermore, Brazil’s Bolsa Escola, now integrated in Bolsa Familia, has helped reduce school drop-out rates and increase enrolments in post-primary education. With respect to health, Progresa has reduced the incidence of ill health among children aged 0-5 years old and the number of days of illness among adults. It has also boosted demand by women for prenatal care as evidenced by the increase in clinic visits in their first trimester, resulting in a 25 percent drop in the incidence of illness among newborns and 16 percent increase in the annual growth rate of children aged 1-3 years. Nicaragua’s RPS, on the other hand, has brought about an increase in immunization rates among children aged 12-23 months. As seen from these Latin American experiences, CCT programs have been successful in fostering synergy between social assistance and human development. Indeed, they hold a promise for attacking poverty and inequality.
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Programa de Educacion, Salud y Alimentacion
opportunity cost (i.e., forgone earnings for households for sending children to school rather than to work or for missing a day’s work to be able to go to a health center). These costs normally serve as barriers in accessing education and health services. Although cash transfers can overcome these barriers, they may not be able to break the natural tendency of parents, nor reverse their decision, to underinvest in the human capital of their children. Hence, imposing conditions tied to human development upon the receipt of cash transfers can address this, thereupon boosting the demand for education and health care.
Size of the transfer In general, the appropriate benefit level should be consistent with the depth of poverty (i.e., the distance between the income of households and the poverty threshold)2 being addressed. However, in the case of CCT programs, the size of transfer should be enough to offset whatever gains or incomes the households can obtain from other activities if they will not comply with the conditionalities attached to the receipt of the cash transfer. In practice, the benefit level varies considerably across countries. For the education grant, though, it is assumed that it generally _____________________ 2
minimum level of income required to achieve an adequate standard of living.
covers both the direct costs (school fees and supplies, and transportation costs) and opportunity cost (i.e., income lost for children who drop out of the household’s labor force). For the health and nutrition grant, meanwhile, it usually compensates for the beneficiary’s travel time to and waiting time at the health center.
Who is eligible? CCT programs are intended to help the marginalized sector of society. While CCT programs are targeted to the poor, the primary focus is on children. This is in recognition of the importance of early interventions that are envisioned to break intergenerational transmission of poverty in the long run. For example, cash transfer for a CCT education component is usually targeted to primary school-aged children and granted on a per-student basis. Meanwhile, cash transfer associated with a health and nutrition component is often family-based and normally targeted to newborn children up to age 2 or 3 when nutritional risk is greatest. N
References Chapman, Katie. 2006. Using social transfers to scale up equitable access to education and health services. Background Paper. Scaling Up Services Team, DFID Policy Division. Rawling, Laura. 2004. A new approach to social assistance: Latin America’s experience with conditional cash transfer programs. Working Paper No. 30165. Washington, D.C.: World Bank.
The Economic Issue of the Day is one of a series of PIDS efforts to help in enlightening the public and other interested parties on the concepts behind certain economic issues. This dissemination outlet aims to define and explain, in simple and easy-to-understand terms, basic concepts as they relate to current and everyday economics-related matters. This Issue was written by Janet S. Cuenca, Supervising Research Specialist at the Institute. She acknowledges the comments of Dr. Rosario G. Manasan, Senior Research Fellow at PIDS. The views expressed are those of the author and do not necessarily reflect those of PIDS and other member agencies and sponsors. N Philippine Institute for Development Studies NEDA sa Makati Building, 106 Amorsolo Street, Legaspi Village, Makati City z Telephone Nos: (63-2) 8942584 and (63-2) 8935705 z Fax Nos: (632) 8939589 and (63-2) 8161091 URL: http://www.pids.gov.ph