Savings and Subsidies, Separately and Together: Decomposing Effects of a Bundled Anti-Poverty Program

• Development Workshop

Date and Location

Monday, November 16, 2015, 4:10 PM - 5:30 PM
ARE Library Conference Room, 4101 Social Sciences and Humanities

Abstract

Many anti-poverty programs are “bundled,” in that they have multiple active program components. We shed light on the interplay between two important types of programs by randomly assigning rural households in Mozambique to subsidies for modern agricultural inputs, formal savings facilitation programs (either a “basic” or a “matched” savings program), or both subsidy and savings programs. We take household consumption per capita as the summary welfare measure of interest. Impacts on consumption are very similar, from an economic and statistical standpoint, for all treatment combinations (subsidy alone, either savings program alone, or combinations of subsidies and savings), amounting to 7.7 percent on average. Theoretically, such a pattern can emerge if access to input subsidies affects the uses to which formal savings are put: savings may be used for mainly self-insurance (buffer stocks) when subsidies are available, but otherwise may serve both investment and insurance purposes. Auxiliary predictions of the theory are borne out in analyses of treatment effects on consumption variance and on the responsiveness of consumption to shocks. A key gain from combining subsidy and savings interventions appears to be an improved ability to cope with risks that arise from exploitation of high-return economic opportunities.