In-Kind Transfers As Safety Nets for the Poor: Do they Expand or Contract during Economic Shocks? Evidence from India

Abstract

We compare an in-kind subsidy, a workfare program, and an unconditional cash transfer in India based on the sensitivity of the insurance provided by each program against local economic shocks. We find that transfers under the in-kind subsidy contract when the beneficiaries are faced with local economic shocks and expand during economically good times. Benefits from unconditional cash transfers and workfare benefits are unrelated to local economic shocks. We measure economic shocks using two independent measures: abnormal local temperature and abnormal bank loan defaults, and obtain similar results. We use bank transactions data for measuring the subsidies.