Real effects of direct cash transfers shocks: evidence from one of the largest social welfare programs in the world

We examine the socio-economic consequences in Brazilian municipalities of one of the world’s largest social welfare programmes – the Bolsa Família. Since the Bolsa Família endogenously targets municipalities with weaker local socio-economic conditions, it becomes challenging to reason about its causal effects on the local economy. We address this endogeneity by exploiting a change in the Bolsa Família regulation in 2012 that established a minimum per capita income of 70 reais for recipient families. Previously, additional financial benefits were available based on the number of children in the family, up to five. Following the change, large families effectively received a positive income shock. We investigate this discontinuity by comparing recipient families of different sizes with income nearing the 70 reais per capita threshold shortly before the shift at the municipality level. Municipalities’ employment, income, and health metrics show consistent and positive results. However, we find no effect on education, which could be explained by the lack of robust education-related conditionalities that Bolsa Família recipients are required to report continuously to enjoy the programme’s benefits.