Unconditional Cash Transfers as a Solution to Poverty Traps
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Journal Title
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School of Business |
Bachelor's thesis
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Author
Date
2021
Department
Major/Subject
Mcode
Degree programme
Taloustiede
Language
en
Pages
22
Series
Abstract
This literature review examines the self-enforcing mechanisms of a poverty trap such as financial and mental constraints which make people unable to climb out of poverty on their own. The research question is whether unconditional cash transfers (UCT) could be a solution to poverty traps since they can offer an ease on the capital constraint. My hypothesis is that UCTs can help the extreme poor to exceed a certain threshold level of capital above which people would escape the poverty trap. The theoretical part of the thesis is based on an economic model of a poverty trap and some literature on psychological effects of scarcity. Then, I compare them with some empirical evidence that consists of recent research papers which examine UCT programs in randomized controlled trials. I show that UCTs have a significant positive effect on both psychological well-being and standards of living. Also, the labor supply of the recipients is not significantly affected or the effect is small but positive. The short-term effects of UCTs are found to be positive and significant in many aspects that affect people’s income-generating activities. However, the long-term effects of UCTs are still to be examined, and the optimal design for such cash transfer programs should also be evaluated more in future studies.Description
Thesis advisor
Stryjan, MiriKeywords
poverty, scarcity, UCT, cash transfers, behavioral economics
