Direct Assistance or Empowering? The Impact of Social Protection on the Subjective Well-Being

This paper investigates the differentiated subjective well-being effects of two transfer payments: providing direct assistance to the poor (Type-A policy) and empowering the poor to aid themselves (Type-B policy). Exploiting China’s Targeted Poverty Alleviation (TPA) policy as a quasi-natural experiment, we use data from the China Household Finance Survey (CHFS) and apply a fuzzy regression discontinuity design (RDD) for causal inference. We find that the Type-B policy substantially improves the subjective well-being of the poor, while the Type-A policy shows no statistically significant effect in 2017 and 2019. Mechanism analysis suggests that among impoverished households, direct assistance is limited to meeting immediate subsistence needs, and its effect wanes over time due to hedonic adaptation. Conversely, empowering policy promotes sustained improvements in well-being by catalysing human capital development. These results offer novel evidence that different types of transfer payments activate distinct tiers of psychological needs, with their effects on subjective well-being shaped both by the way resources are mentally allocated and by the constraining force of hedonic adaptation. This study also provides important policy implications for enhancing the well-being of the poor and guiding the development of more effective social protection systems in developing countries.