Liquidity Constraint vs. Eligibility Constraint: Cash Transfers and Labor Supply in Rural and Urban Areas

Abstract

This paper contributes to the literature on welfare programs by estimating the impact of a Conditional Cash Transfer (CCT) on labor supply in Brazil. Unlike other CCT programs that have been studied, Bolsa Família is a widespread program that have taken place not only in rural and isolated areas, but also in large cities. Previous findings show that this type of welfare benefit does not reduce labor supply and then does not create program dependence. However, when the program goes from isolated areas to large cities, impacts may differ. We find that the benefit actually increases the participation of households’ additional workers in rural areas. On the other hand, it reduces the participation of households’ primary worker in the formal sector in metropolitan areas. Thus the hypothesis that the program creates dependence cannot be rejected for the case of large cities.

Keywords: Labor Supply, Labor Market, Conditional Cash Transfer Programs, Impact Evaluation, Generalized Propensity Score, Brazil

JEL Classification: I38, J22, C21, H31