Annual Report 2018

Economics THE LONG TERM EFFECTS OF CONDITIONAL CASH TRANSFERS ON CHILD LABOR AND SCHOOL ENROLMENT A conditional income transfer program - such as Bolsa Família which requires school attendance by the beneficiaries' children, has notable impacts throughout the economy. This program has been very successful in fighting poverty and inequality and increasing human capital in Brazil, besides having an important effect on child labor. The results are even more impressive when considering that the transfer represents only 0.55% of gross domestic product (GDP). RESEARCH METHOD • OBJECTIVE • To assess the long-term effects of conditional income transfer programs, such as Bolsa Família, on accumulation of human capital and child labor. The hours of child labor are reduced by 20.4%. And after a gap corresponding to one generation, the portion of children working declines from 22% to 17%, which is near the portion that works in the new stationary state. This suggests that the impacts of Bolsa Família on reduction of child labor occur mainly through its effects on the long-term gen- eral equilibrium, and thus are still to come. CONTRIBUTIONS OF THE STUDY • Studies abound that have examined the effects of conditional income transfer programs on education, child labor and poverty. Many studies have observed that Bolsa Família has only slightly increased the educational level, but to the best of our knowledge, there are no previous studies that have investigated the increase in the accumulation of human capital in the Brazilian economy on the long run. This study fills this gap. APPLICATIONS OF THE RESULTS AND POSSIBLE EXTENSIONS OF THE STUDY The changes caused by programs like Bolsa Família have effects that will only be felt totally over an extended period, so the usual methods to evaluate programs can be in- complete or of little use. The article brings a general equilibrium model that allows in- vestigating the long-term effects taking into consideration multiple feedback channels. • A dynamic general equilibrium model of heterogeneous agents is built and calibrated with Brazilian data to analyze a policy similar to that of Bolsa Família. The policy for conditional income transfer is constructed by defining a basic transfer and a basic income limit. The basic income limit includes the net capital and net labor income, but excludes income from child labor. The basic transfer is treated as a normalization and corresponds to what an extremely poor household would receive if their children finished secondary education. All other transfers are proportional to the basic transfer, and are used in the same proportions de- fined by the Ministry of Social Development for the Bolsa Família Program in 2013. Each household whose income is below the basic limit that meets the schooling re- quirement receives a transfer (in the case of only attending primary school, 5/8 of the basic transfer). Besides this, all the households whose income is lower than twice the basic limit receive another transfer, also conditional on schooling, similar to the benefits of Bolsa Família. The basic transfer and program thresholds are defined, and in the equilibrium with Bolsa Familia the total budget of the program corresponds to 0.55% of total output and the coverage of the program is 20.7% of households. As a counterfactual experiment, a new policy is introduced that maintains the previous thresholds and transfers and introduces an extra transfer that does not require school enrollment and is provided to any family aggregate whose total net income is below the basic limit. The extra transfer corresponds to 50% of the basic transfer. RESULTS • The most notable effect of the Bolsa Família program is the accumulation of human capital. Over the long run, the portion of the population not concluding primary school decreases from 47% to 10%. The proportion of adults that conclude primary school in- creases dramatically, from 19% to almost 50%, while the percentage of the adult popula- tion that completes secondary school increases from 25% to 32%. Over the long run, the program increases the percentage of children who finish at least primary school from 52% to approximately 90%. Besides this, the percentage of children who conclude secondary school rises by 30% (from 33% to 41%). On the other hand, the program has almost no effect on college enrollment. AUTHORS: Pedro Cavalcanti Ferreira and Marcel Peruffo. ORGANIZATION: Center for Growth and Economic Development Studies (Growth and Development). SUPPORT: Applied Research Fund (FPA FGV). 36 Annual Report 2018 37 RESEARCH

View entire presentation