Household choices of child activities in the presence of cash transfers

This paper investigates the impact of a government cash transfer on household decisions regarding different activities that a child may perform (schooling, work, leisure). Using data from a randomized evaluation of a cash transfer program in Ecuador, I estimate a choice model to quantify the effect of this policy. The empirical results suggest that the most common behavioral change caused by the program was a reduction in the probability that the household would send the child to work and an increase in the likelihood that a household would choose to combine child labor with schooling. On the other hand, the transfer reduced the allocation of time to certain child working activities, but these results are mainly driven by the effect of the transfer at the extensive margin rather than at the intensive margin. To explain these findings and provide recommendations on how to improve the design of cash transfers, I develop a theoretical model of parental decision-making regarding child activities. Depending on the endowment of skills, a cash transfer attenuates the likelihood of parents choosing market work for their child and increases the likelihood that they may send the child to school or combine child labor with schooling. By modeling the cash transfer as a subsidy of the human capital input and as lump-sum transfer, this study also contributes to the rising evidence that the design of welfare programs strongly matters in terms of achieving program goals.