General Equilibrium Effects of Cash Transfers: Experimental Evidence From Kenya

Abstract

How large economic stimuli generate individual and aggregate responses is a central question in economics, but has not been studied experimentally. We provided one‐time cash transfers of about USD 1000 to over 10,500 poor households across 653 randomized villages in rural Kenya. The implied fiscal shock was over 15 percent of local GDP. We find large impacts on consumption and assets for recipients. Importantly, we document large positive spillovers on non‐recipient households and firms, and minimal price inflation. We estimate a local transfer multiplier of 2.5. We interpret welfare implications through the lens of a simple household optimization framework.

How to Best Fight Poverty: the Uneven Ex-Post Effects of Conditional and Unconditional Cash Transfers on Labor Earnings

“…It is interesting to note that we find positive effects on employment despite that, unlike e.g. the GiveDirectly Kenya experiment (Egger, Haushofer, Miguel, Niehaus, and Walker [2019]), our cash transfer is a smallscale program so there could not be any positive general equilibrium effects on the local economy that increase labor demand. Interestingly, we also find positive effects of UCT on female employment in 2018, and UCT and CCT coefficients are significantly different with a p-value equal to 0.016 in that year.…”

How do government transfer payments affect retail prices and welfare? Evidence from SNAP

“…Nuancing their evidence, we find that grocery chains in particular price more flexibly or have limited geographic representations with stores spanning at most one or two states, such that prices in the sector show significant responses to locally clustered demand shocks. 11 Furthermore, our analysis provides an informative foil to results by Egger et al (2022), who find a significant price effect but one that is an order of magnitude smaller than ours in their analysis of a general cash-transfer program provided to three subcounties (653 villages) in rural Kenya. Although some products showed price inflation as large as 1.2%, the marginal consumption propensity was generally dispersed, and individual and aggregated price responses across products (including food) were far smaller in their setting, contrasting with our setting where the MPC was concentrated on food.…”

“…Sixth, the fungibility of SNAP benefits would lower the magnitude of the effects on the market for food, and fully capturing incidence would require a study of the effect on other product markets. A recent experimental study by Egger et al (2022) examining price effects of a cash-transfer program in rural Kenya, as referenced earlier, shows that indeed marginal consumption propensities in response to undesignated cash transfers are far more dispersed across goods and the aggregate price response far lower. Policy changes in non-recessionary periods and transfer-payment changes in sectors beyond groceries could be useful for further elucidating the significant roles that in-kind designation of electronic benefits, product-specific MPCs, and product-specific market power can play in influencing consumer demand, welfare, and market outcomes in future research.…”

Achieving Scale Collectively

“…Overall, our results offer a concrete example that highlights the challenge of extrapolating from partial equilibrium reduced form estimates to aggregate predictions on the impact of policies at scale (Bergquist, Faber, Fally, Hoelzlein, Miguel, and Rodriguez‐Clare (2019), Egger, Haushofer, Miguel, Niehaus, and Walker (2019)).…”