Measuring the impact of unconditional cash transfers on consumption and poverty in Rwanda

This study estimates the causal effect of Rwanda's unconditional cash transfer program (VUP-Direct Support) on the incidence of poverty, the poverty gap, and household food and non-food expenditure for direct support recipients. Our empirical analysis applies four matching methods to data from the 2013/14 household survey in order to estimate the program impact on the treated. The findings show that participation in the program has positive and statistically significant effects on measured headcount poverty and poverty gap. The program results in a small increase in both total and food consumption, with a reduction in consumption of food from home production, and no change in non-food consumption. The estimated treatment effects are relatively robust to violations of the conditional independence assumption, and to the choice of subsample. The fact that average annual cash transfers are equivalent to a third of total consumption, for recipients, plays an essential role in the observed results. Households respond to VUP cash transfers by working less on their own farms. This is a qualitatively different response than the reaction to remittances, which are associated with more consumption of all types. While VUP cash transfers do not raise consumption by as much as would be expected, thus having a modest effect on measured poverty rates, the transfers in effect allow a significant number of older subsistence households to at least partly retire.