Impact of public transfer on rotating savings and credit associations (roscas): The Indonesia household case

Public transfers in the form of financial assistance to poor households have a positive impact on recipient’s and neighboring households. However, the effect of public transfers on social participation so far has not been empirically supported. This study aimed evaluating the impact of public transfers (direct cash assistance, BLT) on household participation in community activities. The data used in this study is collected from the publication of Indonesia Family Life Survey (IFLS), which has complete information about the activities of household members in the Rotating Savings and Credit Associations (RoSCAs), cooperatives, and community service activities in village development. The availability of household-level micro data allows this study to be done with two important contributions. Firstly, this study can analyze the social impact of public transfers by using multiple more specific indicators of community participation. Secondly, this paper uses the appropriate methodology to control the characteristics of households that are not observed but were highly correlated with community participation and the government programs. As an illustration, egoistic households tend to be inactive in the social activities. These households will also innocently and ineligibly receive assistance and transfers from the government. Without controlling the unobserved heterogeneity, the estimated regression coefficient between program variables and various indicators of public participation will be potentially biased. The nature of the household may influence the decision to attend a social gathering as well as be correlated with the status of the household in obtaining public transfers. To isolate the influence of unobserved factors, this study uses the approach of First Difference (FD) with a combination of Fixed Effect (FE) at the community level. Test results consistently show that the BLT is positively related to social gathering activity. The results showed that households that received public transfers (BLT) were more active in RoSCAs activities. The positive correlation between BLT and RoSCAs activities (Arisan) can still be proven even though there are cases of mis-targeting of public transfers (leakages and under coverage cases). The results of this study have a significant policy implication. Social capital held by the public is undoubtedly an important element in the development of society. Social capital also plays very important role in the successful implementation of government programs. Strong social bonds can reduce the turbulence caused by targeting error. In contrast, government programs in the form of public transfers are also shown to have a positive impact on the strengthening of social capital.