Center for Effective Global Action

Cash transfers have emerged over the last two decades as one of themost widespread and highly researched poverty interventions. The use ofcash transfers to create a Basic Minimum Income (BMI) has become animportant policy debate. Extensive research has been carried out on theimpact of both conditional and unconditional cash transfers. Some of thisevidence finds that cash transfers can lead to long-term, transformativeeffects on economic well-being, while in other contexts, the effects appear tobe limited to increases in short-term consumption. This paper reviews theliterature on the impacts of cash transfers. It then presents a simple modelthat seeks to understand when we can expect cash transfers to havetransformative effects in which the income of recipients transitions to asignificantly and sustainably higher level. Behavioral extensions to themodel show how responses to cash transfers may change when we accountfor endogenous discount rates, cognitive ability, and aspirations.