Do public program benefits crowd out private transfers in developing countries? A critical review of recent evidence. (October 2020)

• Record Type: Journal Article
• Authors: Nikolov, Plamen; Bonci, Matthew
• Is Part Of: World development. Volume 134(2020)
• Publication Date: 2020-10
• Subjects: D64 -- H31 -- H55 -- J14 -- J22 -- J26 -- O15 -- O16 -- R2; Retirement -- Social protection -- Developing countries -- Crowd-out effect -- Inter vivos transfers; Economic history -- 1990- -- Periodicals; Economic assistance -- Developing countries -- Periodicals; 330.9
• DOI: 10.1016/j.worlddev.2020.104967
• Languages: English
• ISSNs: 0305-750X

Abstract

Highlights: Social protection programs generate displacement of private transfers, a scenario that is also known as crowding-out. We document overwhelming evidence that public benefits result in considerable crowding-out. We document stark heterogeneity of the estimates by important demographic characteristics. The two aspects of the crowd-out effect, the extensive and the intensive margin reinforce each other. In specific circumstances, crowding-in could occur. Abstract: Precipitated by rapid globalization, rising inequality, population growth, and longevity gains, social protection programs have been on the rise in low- and middle-income countries (LMICs) in the last three decades. However, the introduction of public benefits could displace informal mechanisms for risk-protection, which are especially prevalent in LMICs. If the displacement of private transfers is considerably large, the expansion of social protection programs could even lead to social welfare loss. In this paper, we critically survey the recent empirical literature on crowd-out effects in response to public policies, specifically in the context of LMICs. We review and synthesize patterns from the behavioral response to various types of social protection programs. Furthermore, we specifically examine for heterogeneous treatment effects by important socio-economic characteristics. We conclude by drawing on lessons from our synthesis of studies. If poverty reduction objectives are considered, along with careful program targeting that accounts for potential crowd-out effects, there may well be a net social gain.