It's All in the Timing: Cash Transfers and Consumption Smoothing in a Developing Country

Samuel Bazzi, Sudarno Sumarto, Asep Suryahadi
Poverty & Inequality, Social Protection

Externally Published Content, November, 2015, Final
Source: Journal of Economic Behavior & Organization 119, November 2015, Pages 267–288

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We use a large-scale unconditional cash transfer program in Indonesia to investigate the importance of timing in shaping household consumption responses to fiscal interventions. Timely receipt of transfers yields no expenditure change relative to non-recipients. However, delayed receipt reduces expenditures by 7.5 percentage points. Ignoring heterogeneous timing leads to sizable underestimates of expenditure impacts. After considering several data-driven explanations, we reconcile these findings with models of consumption smoothing in which liquidity constraints imply asymmetric responses to positive and negative shocks. Our results parallel findings on government transfers in rich countries and yield new implications for program evaluation.