UC Berkeley

Redistribution in cash is growing in popularity as a tool for poverty alleviation. This dissertation studies the effects of a randomized controlled trial of a large, one-time unconditional cash transfer to poor households in rural Kenya. Almost US 11 million was distributed to over 10,000 households across over 650 villages in Kenya. Villages were randomly assigned to the program, and all poor households within treatment village meeting a basic means-test received the transfer.

The first chapter describes the cash transfer intervention and data collection, then uses the experimentally-assigned treatment status to estimate effects on household welfare for recipient households, specifically asset ownership, household expenditure, income, revenue, food security, and health. Recipient households do appear to benefit from the transfers, as they experience an increase of about 40 percent in the value of their home and assets, a 12 percent increase in consumption, an 11 percent increase in revenue, and gains in food security. Spending on temptation goods does not increase, nor is there a reduction in labor supply. Measures of health status are also unchanged.

The second chapter studies the effects of the cash transfers on local public finance outcomes. Informal taxation, whereby households contribute to public goods outside the formal tax system, plays an important role in financing local public goods in many low-income countries, yet little is known about its magnitude or incidence. Informal taxation is implemented by local leaders and enforced socially, and trades off information advantages with potential elite capture. In contrast to formal tax systems, it is unclear how household informal tax payments respond to changes in income. This chapter uses panel data on households and local leaders, combined with exogenous variation in household income from the randomized unconditional cash transfer to poor households, to study how informal taxation and public goods provision responds to household income shocks. The (temporary) cash transfers are not captured by local leaders: I find no effect on household informal tax payments, and recipient household payments are in line with their pre-treatment income. In contrast, informal taxes do respond to non-experimental income changes in panel data. Recipient households pay more formal self-employment taxes, though the magnitude of the increase is small relative to the transfer amount: less than 1 percent of total transfer income is captured by formal or informal taxes. I find no effects of the cash transfers on public goods provision. This suggests local leaders emphasize equity considerations by exempting cash transfers to poor households but miss out on an opportunity to meaningfully increase public goods investment.

A broad range of informal institutions are common in many village economies. These include not just informal taxes for public goods, but also payments for social insurance, interhousehold transfers and interhousehold lending and borrowing. Many of these arrangements are also enforced via social sanctions, and the degree to which participation is voluntary is unclear. In the third chapter, I estimate the effects of an exogenous income shock via a randomized unconditional cash transfer on household social insurance contributions and interhousehold transfers. I find no effect on social insurance contributions, but statistically significant effects on interhousehold transfers, especially to family members. That said, the magnitude of these transfers as a share of the total unconditional cash transfer value is still small. Overall, I do not find that recipient households are not opting out of informal institutions in response to an increase in household income.