The Impacts of Cash and In-Kind Transfers on Consumption and Labor Supply : Experimental Evidence from Rural Mexico

The authors use the unique experimental design of the Food Support Program (Programa Apoyo Alimentario) to analyze in-kind and cash transfers in the poor rural areas of southern states of Mexico. They compare the impacts of monthly in-kind and cash transfers of equivalent value (mean share 11.5 percent of pre-program consumption) on household welfare as measured by food and total consumption, adult labor supply, and poverty. The results show that approximately two years later the transfer has a large and positive impact on total and food consumption. There are no differences in the size of the effect of transfer in cash versus transfers in-kind on consumption. The transfer, irrespective of type, does not affect overall participation in labor market activities but induces beneficiary households to switch their labor allocation from agricultural to nonagricultural activities. The analysis finds that the program leads to a significant reduction in poverty. Overall, the findings suggest that the Food Support Program intervention is able to relax the binding liquidity constraints faced by poor agricultural households, and thus increases both equity and efficiency.