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Welfare effects of an in-kind transfer program: Evidence from Mexico

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  • Tagliati, Federico

Abstract

This paper proposes an approach for ex-ante welfare analysis under in-kind transfers based on demand system estimation and construction of virtual prices (i.e., the prices at which beneficiaries would be as well off as with the subsidy). As an application of this approach, I study a program which randomly transferred either a food basket, procured at a discount in wholesale markets, or an equal-cost cash transfer to poor households in rural Mexico. I find large welfare-destroying distortions from the food basket, corresponding on average to 35% of its face value. Efficiency losses are larger for more vulnerable recipients, as the transfer provided relatively large allotments of commodities consumed in lower shares by the poor. Counterfactual simulations providing better-targeted food transfers suggest that average welfare gains could be enhanced by up to 38% as compared to the cash subsidy, while also reducing the regressivity of the food transfer.

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  • Tagliati, Federico, 2022. "Welfare effects of an in-kind transfer program: Evidence from Mexico," Journal of Development Economics, Elsevier, vol. 154(C).
    • Handle: RePEc:eee:deveco:v:154:y:2022:i:c:s030438782100119x
    DOI: 10.1016/j.jdeveco.2021.102753
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    Cited by:

    1. Federico Tagliati, 2019. "Child labor under cash and in-kind transfers: evidence from rural Mexico," Working Papers 1935, Banco de España.
    2. Sumudu Perera & Ananda Rathnayake & Janaka Fernando & Thilani Navaratne & Dilan Rajapakshe, 2021. "The Impact of Policy Shift from In-kind Transfers to Direct Cash Transfers on Paddy Production: Evidence from Mahaweli H System in Sri Lanka," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 22(1), pages 88-109, March.

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    More about this item

    Keywords

    In-kind transfers; Cash transfers; Demand system; Welfare;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • O22 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Project Analysis

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