What are the benefits of direct cash transfers?
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Benefits of Direct Cash Transfers
Poverty Reduction and Economic Equality
Direct cash transfers have been shown to significantly reduce poverty and economic inequality. In Indonesia, a simulation of cash transfers worth 50 trillion rupiahs indicated that such transfers could reduce poverty and inequality, especially when financed by reducing distortionary subsidies like fuel subsidies. This approach not only helps the poorest segments of society but also minimizes the overall economic cost in terms of reduced GDP.
Human Capital Development and Environmental Conservation
Cash transfers are effective tools for human capital development (HCD) and environmental conservation. They have been used to generate socially desirable outcomes in both HCD programs and Payments for Ecosystem Services (PES) programs. These programs can address economic and gender inequalities, improve program design and implementation, and promote long-term human capital gains. By integrating these programs under a common framework, it is possible to engage target populations more effectively and evaluate program impacts comprehensively.
Health and Nutrition Improvements
Cash transfers have a positive impact on health and nutrition outcomes. For instance, in Niger, a mobile money cash transfer program led to a 9%-16% increase in household diet diversity and an additional one-third of a meal per day for children. These improvements are attributed to time savings and shifts in intrahousehold bargaining power, particularly benefiting women. Additionally, cash transfers have been shown to improve various health indicators, including child health, adult health, and mental health, although the effects can vary across different subgroups .
Education and Savings
Cash transfers also contribute to better educational outcomes and increased savings. They have been demonstrated to improve education and health outcomes and alleviate poverty in various contexts. In the United States, survey experiments revealed that respondents would use cash transfers for regular expenses, paying debts, and building savings, with increased payment amounts positively associated with spending on economic mobility-oriented goals.
Addressing Concerns About "Temptation Goods"
Concerns that cash transfers might be used to purchase "temptation goods" like alcohol and tobacco are largely unfounded. A meta-analysis of 19 studies found that cash transfers have a significant negative effect on expenditures on temptation goods, indicating that recipients do not misuse the funds. This finding is consistent across different regions, including Latin America, Africa, and Asia, for both conditional and unconditional cash transfer programs.
Implementation Efficiency and Cost-Effectiveness
The introduction of mobile money systems has enhanced the efficiency and cost-effectiveness of cash transfer programs, particularly in developing countries with weak financial infrastructure. Mobile transfers save time for recipients and reduce logistical challenges, making the distribution process more efficient. This method also supports local economies and extends the benefits of limited humanitarian aid budgets.
Mental Health and Subjective Well-Being
Cash transfers have a small but statistically significant positive effect on subjective well-being and mental health. A comprehensive meta-analysis found that cash transfers improve both subjective well-being and mental health among recipients, although the effect size is modest. However, when accounting for publication bias, the positive impact is either greatly reduced or completely diminished, indicating the need for more robust evidence.
Conclusion
Direct cash transfers offer numerous benefits, including poverty reduction, improved health and nutrition, better educational outcomes, and increased savings. They are effective tools for human capital development and environmental conservation and can be implemented efficiently through mobile money systems. Concerns about misuse of funds for "temptation goods" are largely unfounded, and while the impact on mental health and subjective well-being is modest, the overall benefits of cash transfers are substantial and well-documented.
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Most relevant research papers on this topic
The direct and indirect effect of cash transfers: the case of Indonesia
Comparison of Direct Transfers for Human Capital Development and Environmental Conservation
Cash Transfers and Temptation Goods
Payment Mechanisms and Antipoverty Programs: Evidence from a Mobile Money Cash Transfer Experiment in Niger
Adjusting for Publication Bias Reveals Mixed Evidence for the Impact of Cash Transfers on Subjective Well-Being and Mental Health
The Impact of Cash Transfers: A Review of the Evidence from Low- and Middle-income Countries
How Would Americans Respond to Direct Cash Transfers? Results from Two Survey Experiments
Cash transfer programs have differential effects on health: A review of the literature from low and middle-income countries.
Impact of conditional and unconditional cash transfers on health outcomes and use of health services in humanitarian settings: a mixed-methods systematic review
Closing the Evidence Gap of Cash Transfer for Tuberculosis-Affected Households; Comment on "Does Direct Benefit Transfer Improve Outcomes Among People With Tuberculosis? – A Mixed-Methods Study on the Need for a Review of the Cash Transfer Policy in India"
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