Welfare Dependence and Perception of Poverty: Explaining the Difference between Objective and Subjective Poverty using Evidence on Social Transfer Programs and Microfinance in Peru

Chindarkar, Namrata (2011). "Welfare Dependence and Perception of Poverty: Explaining the Difference between Objective and Subjective Poverty using Evidence on Social Transfer Programs and Microfinance in Peru" Paper presented at the 8th annual conference of the HDCA, 6-8 September 2011, the Hague, the Netherlands.

In this paper I examine the dierential eect of in-kind social transfer programs and micronance programs on subjective and objective economic well-being. I identify three mechanisms through which these programs aect subjective and objective economic well-being dierently - welfare stigma, selfreliance, and substitution eect.The ndings suggest that there is a statistically signicant negative eect of receiving in-kind social transfers and statistically signicant positive eect of being a member of an MFI on subjective economic well-being, thus indicating the existence of welfare stigma attached to social transfers. The highly statistically signicant positive eect of receiving business development service from an MFI on subjective economic well-being even after controlling for micronance dependency suggests that individuals value the prospect of being self-reliant. Both, being an MFI member and being a recipient of in-kind social transfers, have a highly statistically signicant eect on reducing consumption expenditure. However, the evidence on substitution eect, that is, substituting consumption expenditure with micronance payments is weak. Further, there is weak evidence that number of micronance loans or the additional disposable income available due to in-kind social transfers are being invested in human capital development such as education or health.
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