Paternalistic Social Assistance: Evidence and Implications from Cash vs. In-Kind Transfers

We estimate and compare impacts of cash and in-kind transfers on the consumption of temptation goods in the same population, and explore normative implications. We use two decades of data from South Carolina on cash benefits from Supplemental Security Income (SSI) and in-kind benefits from the Supplemental Nutrition Assistance Program (SNAP) linked to detailed data on adults’ health care use. Our empirical strategy examines outcome changes in the several days following each transfer’s scheduled monthly payout. Emergency department visits for drug and alcohol use increase by 20-30 percent following SSI receipt, but do not respond to SNAP receipt. Fills of prescription drugs for new illnesses also increase following SSI receipt but do not respond to SNAP receipt. Motivated by these non-fungibility results, we develop a model of a paternalistic social planner choosing the mix of cash and SNAP for a fixed-budget transfer program when consumers have self-control problems and may engage in mental accounting. We show that the planner’s optimal SNAP share is strictly positive and weakly increasing as self-control worsens. Moreover, with heterogeneity in self-control and mental accounting, the planner may choose to use SNAP even when they have access to a uniform Pigouvian tax on the temptation good.