Working Paper: NBER ID: w21111
Authors: Martin Ravallion; Shaohua Chen
Abstract: In what is probably the largest cash transfer program in the world today China’s Dibao program aims to fill all poverty gaps. In theory, the program creates a poverty trap, with 100% benefit withdrawal rate (BWR). But is that what we see in practice? The paper proposes an econometric method of estimating the mean BWR allowing for incentive effects, measurement errors and correlated latent heterogeneity. Under the method’s identifying assumptions, a feasible instrumental variables estimator corrects for incentive effects and measurement errors, and provides a bound for the true value when there is correlated incidence heterogeneity. The results suggest that past methods of assessing benefit incidence using either nominal official rates or raw tabulations from survey data are deceptive. The actual BWR appears to be much lower than the formal rate, and is also lower than the rate implied by optimal income tax models for poverty reduction. The paper discusses likely reasons based on qualitative observations from field work. The program’s local implementation appears to matter far more than incentives implied by its formal rules.
Keywords: Benefit incidence; Dibao program; China; Poverty reduction; Social policy
JEL Codes: H22; I32; I38; O12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| BWR of China's dibao program (I38) | actual implementation differs from nominal rates (E43) |
| local implementation practices (F55) | BWR (L94) |
| BWR (L94) | poverty trap (I32) |
| local discretion and practices (Z28) | BWR (L94) |
| program design (C88) | long-term poverty alleviation (I32) |
| income tax models (H26) | optimal rates for poverty reduction (I32) |