The Price Effects of Cash versus In-Kind Transfers

62 Pages Posted: 6 Aug 2015

See all articles by Jesse M. Cunha

Jesse M. Cunha

Naval Postgraduate School

Giacomo De Giorgi

University College London; NBER; Federal Reserve Banks - Federal Reserve Bank of New York

Seema Jayachandran

Northwestern University - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: August 1, 2015

Abstract

This paper examines the effect of cash versus in-kind transfers on local prices. Both types of transfers increase the demand for normal goods; in-kind transfers also increase supply in recipient communities, which should cause prices to fall relative to cash transfers. We test and confirm this prediction using a program in Mexico that randomly assigned villages to receive boxes of food (trucked into the village), equivalently valued cash transfers, or no transfers. We find that prices are significantly lower under in-kind transfers compared with cash transfers; relative to the control group, in-kind transfers lead to a 4 percent fall in prices while cash transfers lead to a positive but negligible increase in prices. Prices of goods other than those transferred are also affected, but by a small amount. Thus, households' purchasing power is only modestly affected by these price effects, even in this setting where program eligibility is high, the transfer per household is sizeable, and hence the supply influx is large. The exception is in remote villages, where the price effects (both the negative effects of in-kind transfers and the positive effects of cash transfers) are larger in magnitude. The effects do not dissipate over the two years of program duration we observe.

Keywords: price, policy

JEL Classification: O12, O00

Suggested Citation

Cunha, Jesse M. and De Giorgi, Giacomo and Jayachandran, Seema, The Price Effects of Cash versus In-Kind Transfers (August 1, 2015). FRB of New York Staff Report No. 735, Available at SSRN: https://ssrn.com/abstract=2640163 or http://dx.doi.org/10.2139/ssrn.2640163

Jesse M. Cunha

Naval Postgraduate School ( email )

555 Dyer Road
Monterey, CA 93943
United States

Giacomo De Giorgi (Contact Author)

University College London ( email )

Gower Street
London
United Kingdom

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Seema Jayachandran

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States

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