Frequency of Benefit Payments in Social Transfer Programs

Emma Aguila , University of Southern California
Arie Kapteyn, University of Southern California
Francisco Perez-Arce, University of Southern California

Since individuals are often unable to smooth consumption, the frequency with which payments are delivered is an important design element of social transfer programs. We hypothesize programs with more frequent payments will result in smoother consumption and higher consumption levels of food and other personal necessities, while programs with less frequent payments will result in higher consumption of durables and discretionary spending. We derive these hypotheses from a model of intertemporal consumption where individuals are hyperbolic discounters or face saving constraints. We compare the effects of two noncontributory pension programs in Mexico. These programs differed in frequency of their payments: monthly or bimonthly. We observe similar food expenditure patterns for both programs at baseline but smoother consumption patterns over time in the monthly program. Recipients of the monthly program reported greater healthcare use and higher food consumption, while those in the bimonthly program increased expenditures on durables and discretionary items.

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 Presented in Session 2. Flash Session: Population Aging, Consequences, and Public Policies