Do conditional cash transfer programmes (CCTs) succeed in reducing inequality? Are they effective in producing better development outcomes in the countries where they have been implemented? This report argues that CCTs have been an effective way to redistribute income to the poor, while recognising that even the best-designed and best-managed programme cannot fulfil all of the needs of a comprehensive social protection system. Evidence from existing programmes suggests that to maximise their potential impact, CCTs should be complemented with other interventions, particularly those that focus on outcomes rather than on promoting the use of services alone.
Conditional cash transfers are programmes that transfer cash, generally to poor households, on the condition that those households make pre-specified investments in the human capital of their children. Countries, particularly in Latin America, have been adopting or considering adoption of CCT programmes at a prodigious rate, with CCTs in some cases the largest social assistance programme in the country. CCTs represent the best means of redistribution within society when two broad sets of conditions are met: first, when poor households do not sufficiently invest in the human capital of their children and, second, when political realities necessitate that redistribution be conditioned on good behaviour, rather than delivered as unconditional transfers.
Most CCTs seek both to reduce consumption poverty and to encourage investments in the education and health of children. Analysis into the impact these programmes have had on their target populations produced the following key findings:
- CCTs have improved the lives of poor people: transfers generally have been well targeted to poor households, have raised consumption levels, and have reduced poverty – by a substantial amount in some countries
- CCT programmes have provided an entry point to reforming badly-targeted subsidies and upgrading the quality of safety nets
- CCTs have led poor households to make more use of health and education services, yet the evidence on improvements in final outcomes in health and education is more mixed.
CCT programmes are just one option within the arsenal of social protection programs that can be used to redistribute income to poor households, but they have proven to be a useful tool in improving the lives of many. Policymakers seeking to design and implement a conditional cash transfer programme should address the following issues:
- Targeting: A CCT should be designed to target poor households that under-invest in the human capital of their children. This involves first targeting families based on poverty and second identifying families that have children at school age or perhaps, more narrowly, those that have children transitioning from primary to secondary schooling.
- Appropriate conditions and scope of transfer: The impact of CCT programs on service use cannot be explained by the cash component of the program alone, the conditions and the size of the transfer are important. The conditions must provide the appropriate incentives to improve nutrition and health, while the size of transfer should be calculated to provide maximum benefit without triggering negative trade-offs or waste.
- Entry and exit rules: These are necessary to avoid confusion among prospective beneficiaries and to minimise the potential for manipulation, abuse, and unintended incentive effects
- Complementary interventions: CCT and other cash transfer programs should be seen as complements, rather than substitutes, addressing different household characteristics.
