Cash Transfers and Poverty Reduction in Chile

By all accounts, poverty in Chile has declined dramatically over the last 20 years, with the nacional headcount ratio declining from nearly 40% in 1987 to below 14% in 2006. Due to data limitations, most research on poverty in Chile has focused on national and regional estimates, yet recent improvements in poverty mapping methodologies now enable the analysis of poverty at the sub-regional level. In this paper, we employ these methodologies to assess the impact of cash transfers on poverty rates at the county level. We find that transfers significantly reduce the incidence of poverty and that estimated headcount ratios fall by between 5% and 68%. To better understand variation in the effectiveness of transfers in reducing poverty at the local level, we also explore the interplay between transfers and geography. We find that the greatest reductions in poverty at the county level occur in rural households and that topography influences the effectiveness of transfers in some areas. Taken together, these findings suggest that targeting at low levels of aggregation can help to deliver further reductions in poverty.