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Dispelling the Myth of Welfare Dependency
October 2019 / Rema Hanna, Jeffrey Cheah Professor of South-East Asia Studies, Harvard Kennedy School
Social
safety nets worldwide routinely come under attack by critics who say they incentivize
idleness and create a culture of dependency. But my colleagues and I
re-analyzed data from seven different experimental trials of government
cash-transfer programs in developing countries and found no evidence that
systematic income support reduces work. In another study, we showed that Indonesia’s
cash-transfer scheme yielded significant improvements in some of the most
stubborn and problematic areas of public health and education – gains that were
made possible by a cumulative investment in children over the course of six
years. Looking at these studies side-by-side suggests that it is time to
rethink classical economic theory predicting that government payouts will lead
individuals to work less. In fact, cash-transfer programs need not have adverse
effects on work, and may allow poor families to make the substantial, long-run
investments in their children that will allow them to escape poverty.
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