Sceptics of cash transfers argue that the beneficiaries would fritter away the cash on temptation goods like alcohol and entertainment. But there is fairly strong evidence refuting this hypothesis. People, after all, behave as rational individuals and use the cash for their felt needs.
But these are findings from small sample field experiments. In contrast, the findings of a real world scale cash transfer program is not encouraging. The Times points to a report by the Department of Agriculture which finds that the largest purchases by the beneficiaries of Supplemental Nutrition Assistance Program (SNAP), the $ 74 bn food stamp program that covers 43 million poorest Americans, are soft drinks, which accounted for about 10% of the dollars spent on food. The report concludes that a disproportionate amount of money was going to unhealthy foods,
Over all, the report found, SNAP households spent about 40 cents of every dollar at the grocery store on “basic items” like meat, fruits, vegetables, milk, eggs and bread. Another 40 cents of every dollar was spent on “cereal, prepared foods, dairy products, rice and beans.” Lastly, 20 cents of each dollar was spent on a broad category of junk foods that included “sweetened beverages, desserts, salty snacks, candy and sugar.” SNAP households spent 9.3 percent of their grocery budgets on soft drinks alone. That was slightly higher than the 7.1 percent figure for households that do not receive food stamps.
Now, it is possible that SNAP households would have, even without cash transfers, consumed more junk food. But that does not take away from the fact that SNAP households actually spend more on junk food than their non-SNAP counterparts. And it does pose worrying questions for those advocating the replacement of an in-kind food/nutrition security program with cash transfers.
This is another reminder about the need for caution in interpreting the findings of field experiments. It is likely that the scale dynamics associated with such transformations work in an unpredictable manner. In particular, the general equilibrium effects from a scale implementation can be very different from the partial equilibrium of a pilot.