The Behavioral Effects of Unconditional Cash Transfers: Evidence from Indonesia

Policy Research

Dependence on cash transfer programs, either universal basic income, targeted conditional, or unconditional programs, could produce an undesirable behavioral response among the beneficiaries. Potential adverse outcomes include reduced labor market participation, reduced economic activity, lack of insurance or savings, or increased risky health behavior, such as smoking. We estimate the effects of receiving unconditional cash transfers on individual behavior. The unconditional cash transfer program targeting poor households in Indonesia began in 2005. With 15.5 million beneficiary households, the program remains one of the largest cash transfer programs in the world. We utilize three waves of the Indonesian Family Life Survey (IFLS), a household-level longitudinal dataset. To identify causal relationship, we implement coarsened exact matching to achieve balance in the characteristics of beneficiaries and nonbeneficiaries in the baseline year before the cash transfer program was implemented. We then estimate a difference-in-differences specification to remove time-invariant unobserved heterogeneity. We find no evidence that receiving the unconditional cash transfer program altered employment status or working hours. We also find no significant effects on risky behavior, such as smoking behavior, insurance purchasing, risk or time preferences, or health-related behaviors. Overall, we do not find any evidence that the cash transfer program produced undesirable or risky behaviors.

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Ridho Al Izzati
Daniel Suryadarma
Asep Suryahadi
Daniel Suryadarma
Research Area 
Cash Transfer
behavioral effects
labor market outcomes
Publication Type 
Working Paper
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