The Effect of Government Transfers on Poverty and Inequality

Abstract

Poverty and inequality in Bolivia have reduced to a great extent in the last 20 years in Bolivia. There are mixed opinions regarding the role of the state in this overall positive result, and consistent evidence of state intervention is still missing. This dissertation aims to explore the topic of the impact of government intervention on inequality and poverty from three different perspectives. <br /> In the first chapter, I frame the theoretical framework and set the research questions of each of the chapters of the dissertation. In the second chapter, I examine the impact of a policy experiment in Bolivia in 2007/2008, in which the payment method of a cash transfer changed from a yearly lump sum to monthly installments. Both amounts do not differ if we take them in full, but the change in the payment method could have an impact given inherent behavior-specific constraints like lack of control of expenditures, propensity to overspend and inability to save regularly. I am interested in the effects that this policy change might have had on educational outcomes when the outcomes of those affected by the policy change are compared with those who were not affected. Results show an increase in attendance (around three percentage points) and a decrease in child labor (by eight percentage points) for older children (attending secondary school). The results are fairly robust to the use of different specifications. This suggests that a smaller but more regular, constant in time and predictable flow of cash transfers can be preferable to a once-a-year significant lump-sum transfer.<br /> In Chapter 3, I evaluate the impact of increased fiscal decentralization on outcomes as nutrition, access to safe water and sanitation in Bolivia during the 2000s decade. The results show that fiscal decentralization has not increased the access of the population to safe water or sanitation. Meanwhile, nutritional status of children less than five years old has slightly improved during the study period, suggesting a positive impact of increased decentralization on nourishment indicators. The inclusion of other dimensions of decentralization policy (like administrative decentralization and the role of political institutions) are also analyzed, showing important interactions with fiscal decentralization. On the other hand, decentralization does not appear to be pro-poor, as the results show that the progress on nourishment indicators was more considerable in non-poor municipalities versus poor municipalities. These results are robust to different thresholds and deprivation measures. <br /> In the last chapter of the dissertation, I study the topic of horizontal inequality. Horizontal inequality refers to the difference in income (or another welfare indicator) due to membership in a specific group (e.g., determined, by race, gender, location, etc.). This difference could be relevant in a context in which particular groups have been historically excluded, as the case of indigenous people in Bolivia. In this chapter, a tax-benefit incidence analysis model is used to assess the role of net public transfers on horizontal inequality in Bolivia for the year 2015. The group categories that are subject of the analysis are defined by ethnic status, gender, and location, besides a combination of these categories. Results show that the most significant group inequality is observed when the indigenous status is defined using an ethnolinguistic metric. However, the role of self-identification in determining indigenous status is less important in explaining the income gap. While the fiscal system seems to be progressive for indigenous and urban/rural categories, this progressivity is not present when the gender dimension is assessed.