Cigs

It is increasingly common for governments to give poor people money. Rather than grant services or particular goods to those in poverty, such as food or housing, governments have found that it is more effective and efficient to simply hand out cash. [..]

For decades, policymakers have been concerned that poor people will waste free money by using it on cigarettes and alcohol. A report on the perception of stakeholders in Kenya about such programs found a “widespread belief that cash transfers would either be abused or misdirected in alcohol consumption and other non-essential forms of consumption.”

The opposite is true.

A recently published research paper (paywall) by David Evans of the World Bank and Anna Popova of Stanford University shows that giving money to the poor has a negative effect on the consumption of tobacco and alcohol. Evans and Popova’s research is based on an examination of nineteen studies that assess the impact of cash transfers on expenditures of tobacco and alcohol. Not one of the 19 studies found that cash grants increase tobacco and alcohol consumption and many of them found that it leads to a reduction.

In addition to looking at results from individual studies, the researchers also conducted a meta-analysis—a statistical technique for combining the results from across studies—to find the overall effect on tobacco and alcohol consumption of receiving cash. Their meta-analysis found that the overall effect was slightly negative.

Why on earth would this be? Evans and Popova highlight several possibilities.

One, the cash transfers may change a poor household’s economic calculus. Before receiving the cash, any spending on education or health might have seemed futile, but afterwards, parents might decide that a serious investment in their children’s school was sensible. To make this happen, it might mean cutting back on booze and smoking.