Evaluating Indonesia’s Unconditional Cash Transfer Program, 2005-6

Bazzi, Samuel, Sudarno Sumarto, and Asep Suryahadi (2012). "Evaluating Indonesia’s Unconditional Cash Transfer Program, 2005-6" Paper presented at the 9th annual conference of the HDCA, 5-7 September 2012, Jakarta, Indonesia.

Targeted cash transfer programs can be an effective means to compensate households adversely affected by the removal of commodity subsidies in developing countries. In 2005, after cutting fuel subsidies, the Government of Indonesia (GOI) implemented the world’s largest unconditional cash transfer (UCT) program to date. Between October 2005 and September 2006, nearly 19 million households received quarterly disbursements of around 30 USD. This paper reports results from the first rigorous evaluation of this program with respect to several outcomes of interest over two time horizons: (i) a short-term period after which beneficiary households had received one or two quarterly disbursements and (ii) a mediumterm period by which time the program had ceased. The stated goal of the program was to sustain consumption levels among recipient households faced with commodity-specific and generalized price shocks, but health, education and labor supply outcomes are also examined in detail. A rich array of nonexperimental identification strategies offer a mixed view of the program’s effectiveness. Our first set of findings suggest that the transfers did not translate into expenditure growth among recipients at the same rate as comparable non-recipients. However, we put forward evidence suggesting substantial differences between recipient households in terms of the timing of the first two disbursements of the transfer. Moreover, there are economically meaningful differences in the expenditure effects depending on household size whereby smaller households experiencing larger increases in (nonlabor) income per capita as a result of the transfer experience relatively higher expenditure growth. We also uncover a number of important sources of heterogeneity in program impacts according to location of residence, baseline income, exposure to rice price shocks, among others. We find more nuanced impacts on education, health, and labor supply. First, the added liquidity from the UCT enabled households to increase their utilization of outpatient health services at both public and higher quality private institutions. Second, although the UCT is mildly associated with higher school dropout rates, currently enrolled children residing in recipient households experience sharper declines in labor supply than children in non-recipient households. For non-enrolled, working-age adults, however, UCT receipt is associated with negligible changes in labor supply.
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