Nova workboard

a blog from young economists at Nova SBE

Bolsa Família: Welfaring out of poverty

 

Bolsa Família is a social welfare program in Brasil, part of a bigger network of measures to end poverty called Fome Zero, introduced by the past Brazilian President Lula da Silva. Although it now has been expanded by Dilma Rousseff with Brasil Sem Miséria program, I focus on Bolsa Família itself.

The mentioned program is a CCT (Conditional Cash Transfer)  which are well-know programs for (development) economists, where you usually have a transfer for some type of individuals, conditional on them doing something (it could be, taking your children to the hospital regularly, taking them to school, and so on). This conditionality is needed to avoid misusage of the cash transfer. Bottom line it is used to align the incentives of parents to make sure that their kids really go to school.

Bolsa Família is based on education, and in short-terms it gives a certain amount of money to poor families that make sure their children: Go to school; Skip little or no classes at all; Are vaccinated.
Although CCTs are very common in Latin America, there are not many projects of this kind that have been analyzed systematically and methodologically, ex-ante and ex-post, so this one is perfect to be considered from a microeconomic perspective. Moreover, it is the largest one of its kind, in the world. For example, Hoffman, 2006 (in portuguese) studied how much the total inequality decrease in Brazil, between 1997 and 2004, was due to this program, and concluded that in many regions it was close to 28%. In the poorest region, Northeast, this effect reached 66% of the reduction in inequality, and could even reach higher values (87%) if we consider a short time period. In what concerns fairness the program did very well: It decreased poverty and inequality dramatically.

The problem can, however, rely on the efficiency of the program, in pure economic terms. This type of programs are not Pareto Efficient, for sure, since the money that is given to these families comes from somewhere, usually taxation, so not only some people have now less money than they had, but there is some deadweight loss (excess burden) associated with the taxes, so we lose some feasible and optimal resource allocations. The first thing that we can argue is that not only is redistribution desirable, but when you have 8.5% of population below the extreme poverty line, even with the cost of some DWL, we will end up in a higher Social Surplus level than before(this of course, underlines some marginal utility of money assumption, i.e. someone very, very, very poor, will get more utility from 1 extra euro, than Bill Gates will. Controversial assumption). However, I think that a 2 period analysis of this program is too limited. The biggest advantage of CCTs of this kind is its investment in human capital. Most of the children that are going to school are the first generation in their families to do so, and as we know, educational level is highly correlated with wages, so these kids will be, on average, better-off than their parents. These repeated but limited transfers (not one-time transfers, but an extension of it), can take, and took out, millions of people out of poverty, and this effect could persist for generations, so we end up with a inter-generational higher utility level! Not to mention side effects such as: the efficiency gains from having more educated people in the labor force; decrease in crime rates due to less poverty and less educational dropout, and so on and so forth.

These lump-sum transfers could help millions of people escaping the so-called poverty trap, while helping Brazil getting more competitive.

Sérgio Rocheteau #620

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Author: studentnovasbe

Master student in Nova Sbe

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