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Cash transfers reduce alcohol and tobacco expenditure

Categories : Cash facilitates budgetary control, Cash is efficient
December 29, 2016
Tags : Africa, Asia, Budget control, Humanitarian, poverty, South America
For decades, policymakers have been concerned that cash transfers to poor households would be wasted on temptation goods, such as cigarettes and alcohol and other non-essential forms of consumption. New research shows the opposite is true.
Guillaume Lepecq

A research paper by David Evans, World Bank and Anna Popova, Stanford University concludes that giving money to the poor has a negative effect on the consumption of ‘temptation goods’ such as tobacco and alcohol. The paper reviews 19 studies with quantitative evidence on the impact of cash transfers on temptation good expenditure, as well as 11 studies that surveyed whether respondents reported they used transfers to purchase temptation goods. Not one of the 19 studies found that cash grants increase tobacco and alcohol consumption and many of them found that it leads to a reduction.

The authors put forward several explanations.

Cash transfers change the way poor households manage their budgets. Before receiving cash, spending on education or health might have seemed futile, but afterwards, parents might decide to invest in their children’s education. To make this happen, it might mean cutting back on booze and smoking.

The economists  show that when money is given for a specific reason, people tend to use it for that reason, even when there is no one forcing them. In the case of cash transfers, households are generally told to use the money for family welfare.

Lastly, cash transfers are usually made to women. When women rule over household income, money is more likely to be used on food and healthcare studies find.