Standard benefit incidence analysis shows that cash transfers can reduce extreme poverty significantly especially if the per beneficiary transfer is of a certain magnitude and the coverage of the poor is large.
Figure 1 shows the decline in pre-transfers extreme poverty caused by transfers, as measured by the percentage change in the headcount ratio between pre-transfers and post-transfers income. The pre-transfers and post-transfers incidence of extreme
poverty is shown in Table 1. Extreme poverty here is defined as the proportion of individuals whose income falls below the international poverty line of US$2.50 per day in purchasing power parity.
Note that, for simplicity, poverty, extreme poverty and indigence are used interchangeably. Comparing cash transfer programmes in Latin America Flagship cash transfer programs such as Bolsa Familia in Brazil, Oportunidades in Mexico, Jefes y Jefas in Argentina, Bono Juancito Pinto in Bolivia and Juntos in Peru have become household names in their
respective countries.
In the case of Bolsa Familia and Oportunidades, they have gained international recognition as well.
Except for Oportunidades in Mexico, these are neither the only cash transfer programs nor necessarily the largest in terms of resources. Argentina’s largest program is the Pension Moratorium (2.3% of GDP)— a special non-contributory pension that increased the proportion of women in retirement age who receive a pension by almost 30 percentage points (more than 90 % of women of eligible age now receive
a pension). In Brazil, the largest is the Special Circumstances Pension (2.3% of GDP), a transfer designed to support, for example, widows and workers who become disabled (resources spent on Bolsa Familia equal 0.4%). In Bolivia, Renta Dignidad—a universal minimum pension—is the largest (1.4%
of GDP). In Peru, food transfer programs cost 0.2% of GDP–twice as much as Juntos.
Although Argentina and Mexico are similar in terms of per capita GDP (measured in purchasing power parity the latter was around 14,000 dollars per year), Argentina spends more on cash transfers (3.0 % versus .75 % of GDP) and a larger percentage of the extreme poor are transfer beneficiaries
in Argentina than in Mexico (92.5 versus 66.8 %). Unsurprisingly, transfers in Argentina reduce extreme poverty by a considerably larger amount. This is true, however, in the short-run. Since the pension
moratorium program may incentivize informality, the formal social security system could face sustainability issues in the future. Also, public revenues in Argentina have been particularly high due to the commodity boom. The government may be unable to support generous cash transfers under more adverse conditions.
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