Will elders provide for their grandchildren? Unconditional cash transfers and educational expenditures in Bolivia

• Published date: 01 May 2020
• Author: Alberto Chong,Fernando Ríos‐Avila,Mónica Yáñez‐Pagans,Gustavo Canavire‐Bacarreza
• DOI: http://doi.org/10.1111/rode.12647
• Date: 01 May 2020

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wileyonlinelibrary.com/journal/rode Rev Dev Econ. 2020;24:424–447.

© 2020 John Wiley & Sons Ltd

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INTRODUCTION

Despite the fact that conditional cash transfers (CCTs) have been quite successful in achieving de-

velopment goals, there have been recent discussions on how they compare with unconditional cash

transfers (UCTs). It is unclear whether the former are a strong development strategy, as the latter may

sometimes provide equal or even superior results depending on the area of application. For instance,

UCTs have shown to be effective in reducing child labor, increasing rates of schooling, and improving

health and nutrition (Baird et al, 2011). Given that UCTs are administratively easier to implement and

tend to be less expensive than CCTs, a clear understanding of the key characteristics associated with

Received: 2 May 2018

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Revised: 21 December 2019

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Accepted: 24 December 2019

DOI: 10.1111/rode.12647

REGULAR ARTICLE

Will elders provide for their grandchildren?

Unconditional cash transfers and educational

expenditures in Bolivia

GustavoCanavire-Bacarreza1

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AlbertoChong2,3

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FernandoRíos-Avila4

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MónicaYáñez-Pagans5

1Inter-American Development Bank,

Washington, DC, USA

2Georgia State University, Atlanta, GA,

USA

3Universidad del Pacifico, Lima, Peru

4The Levy Economics Institute of Bard

College, New York, NY, USA

5The World Bank, Washington, DC, USA

Correspondence

Alberto Chong, Georgia State University,

Atlanta, GA, USA.

Email: achong6@gsu.edu

Abstract

We take advantage of repeated cross-sectional household

surveys and a sharp discontinuity created by the introduc-

tion of an unconditional cash transfer to elders in Bolivia,

to evaluate its impact on educational expenditures on chil-

dren within a household. We find positive and significant

impacts of the program at the aggregate level. We also find

that the program has stronger effects on indigenous popula-

tions as well as on female and rural populations. Our results

are robust to a series of falsification tests, survey structure,

model specification, and estimation methods.

KEYWORDS

Bolivia, children, education, expenditures, household, unconditional cash

transfers

JEL CLASSIFICATION

H55; O15; I12; D12

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CANAVIRE-BACARREZA Et Al.

the successful implementation of UCTs is rather relevant. Some recent research along these lines is

provided by both Burlando (2014) and Aguero et al. (2015), who show that attaching conditions to

transfers may be superfluous as long as a clear alignment of incentives occurs.

In this paper, we study the causal impact of UCTs on intra-household allocation in a context in

which, given an alignment of incentives, conditions to transfer cash may not be critically needed. The

specific UCT that we explore arises from an exogenous policy change implemented by the govern-

ment of Bolivia, according to which old-age people are to be provided with a permanent unconditional

transfer of cash. Similar to many developing countries, old-age people are among the most vulnerable

groups in Bolivia, typically due to liquidity constraints that surge from inadequate pension systems

and high informality levels. For the purpose of our research, we focus on the case of extended house-

holds where children and elders live together in the same premises, which is not uncommon in many

developing countries.1

It is reasonable to expect that elders living with children in the same household

will develop stronger bonds and will become more invested in the welfare of the children in terms of

human capital investments, such as education and health, which reinforces an alignment of incentives

within the members of the household. As in most overlapping generations models, an intergenera-

tional transmission of wealth from older generations to younger generations is expected to occur. This

because of the alignment of incentives of the older generation with respect to the expectations of wel-

fare improvement of younger generations. In the context of a standard rational expectations approach

this may translate into increased incentives for intra-household reallocation of funds from the older

generation to the younger generation in the short run, even when the older generation is under binding

budget constraints (Barro and Sala-i-Martin, 2004; Azariadis, 1993). Interestingly, this idea has rarely

been tested. Will older generations actually provide to younger ones in the short run, when they are

still alive and under binding cash constraints? Will they do so unconditionally with the alignment of

incentives?

There is relatively limited empirical evidence on the effects of old-age cash transfers and even less

on the impact of old-age cash transfers on intra-household investment allocation. As mentioned ear-

lier, the latter is of particular interest to researchers given the increasing use of this type of transfers in

developing countries, the number of beneficiaries living within family households, and the potential

dependence on cash transfers in poor households. Some related results are provided by Duflo (2003)

and Edmonds (2006), who examine the South African old-age pension program and find evidence on

the redistributive consequences of the transfer on food, clothing, housing, and overall better conditions

of households with children. In Latin America, there is evidence that transfers have reduced poverty

(Joubert and Todd, 2011; Barrientos, 2003). In Chile and Mexico, there is evidence that households

that receive cash transfers deviate expenditures toward human capital investments and, in particular,

health (Beherman, 2011; Amuedo Dorantes and Juarez, 2015).

The implementation of an old-age UCT program in Bolivia provides an excellent opportunity to

study the causal effects of UCTs on intra-household income allocation toward children’s human cap-

ital investments and, in particular, investment on education, along with health, on which there is little

evidence. This program has been at the core of old-age population support strategies in the country

and was first implemented at the end of 2000 in the name “Bonosol.” However, its impacts, if any, are

still grossly understudied. We take advantage of the fact that the probability of receiving this transfer

changes discontinuously at the eligibility age and use this sharp discontinuity to parametrically iden-

tify conditional average intention-to-treat effects and study intra-household income allocation patterns

with emphasis on private education investments.

We measure the impact of this program on child-level educational expenditures in the context of

old-age program eligibility after controlling for socioeconomic and demographic characteristics.2

The

eligibility impact, which we allow to vary over households and children, is assumed to be a linear