Government Cash Transfers and Poverty Reduction in Kenya: Evidence from a DEMETRA CGE-Microsimulation Model

Government cash transfer programmes are a central component of Kenya's social protection system, yet their economy-wide and distributional effects remain insufficiently quantified. This paper evaluates the poverty effects of a real KES 0.5 billion increase in government-to-household transfers using the DEMETRA comparative-static computable general equilibrium model linked to household microsimulation. The CGE model is calibrated to a customized 2021 Kenya Social Accounting Matrix, while the microsimulation uses the 2015/16 Kenya Integrated Household Budget Survey. The framework separates a direct welfare channel, through which transfers raise household income, disposable income and consumption, from an indirect macro-fiscal channel operating through government saving, aggregate saving, investment, output, factor income and prices. The simulation raises income and consumption for most household groups, with the largest proportional gains among lower-income groups. National poverty incidence falls from 40.7 percent to 31.6 percent, while the poverty gap declines from 15.5 percent to 11.0 percent. Under the savings-driven investment closure, the fiscal balance, total saving, investment and gross domestic product weaken. The findings show that cash transfers can generate substantial short-run poverty reduction, but the size of the gains depends on targeting, the microdata baseline and the financing closure. Sustainable expansion therefore requires accurate targeting and an explicit financing strategy.