Consumption Smoothing and Frequency of Benefit Payments of Cash Transfer Programs

Published in: American Economic Review, Volume 107, Number 5 (May 2017), pages 430-435. doi: 10.1257/aer.p20171147

Posted on RAND.org on June 28, 2017

by Emma Aguila, Arie Kapteyn, Francisco Perez-Arce

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We analyze two noncontributory Mexican pension programs for the elderly. Both paid similar amounts, but one paid monthly while the other paid every two months. The Life Cycle Hypothesis suggests frequency of benefits payments should not affect consumption smoothing, but we find the monthly program was more effective in smoothing food expenditure. It also increased doctor visits and reduced the incidence of hunger spells. Under the bimonthly program, expenditures on food significantly decline between paychecks but ownership of durable goods increased. This suggests the importance of payment frequency in social programs.

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