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

Policy Research

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.

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Author 
Samuel Bazzi
Sudarno Sumarto
Asep Suryahadi
Author(s)
Keywords 
cash transfers
marginal propensity to consume
liquidity constraints
program evaluation
Publication Type 
Journal Article