The impact of social assistance transfers on chronic and transitory poverty in Chile: 2001-2006

While the studies generally measure the impact of government programs on poverty by comparing pre-transfer and post-transfer poverty, most previous studies of social policy and poverty in developing countries have neglected the indirect effects of government programs on poverty persistence over time that may operate through the labor supply or productive investment. A domain of the welfare state that is particularly inclined to produce this type of impacts is social assistance. In this study, I attempt to fill in this gap and examine the indirect impacts of benefits in cash provided by social assistance on chronic and transitory poverty in Chile. In spite of low generosity of benefits, I argue that Chilean social assistance transfers have a positive impact on chronic poverty, insofar as this type of benefits is associated with incentives to work in the informal sector. In contrast with this poverty status over time, I expect that social assistance transfers do not affect transitory poverty. The hypothesis for chronic poverty finds support in an empirical test carried out on a sample of working-age individuals taken from the Chilean Household Panel (Encuesta Panel CASEN) for 2001 and 2006. However, the expected effect for transitory poverty is rejected.  Overall, the findings of this study indicate the emergence of undesired consequences of government programs and provide information that would likely improve the design of social assistance benefits in Chile and in other developing countries.