The poverty alleviation effect of transfer payments: evidence from China

Abstract

Abstract Transfer payments play a crucial role in combating poverty in countries. However, the effectiveness of transfer payments in alleviating poverty remains controversial due to variations in environmental factors, economic development, and cultural contexts across different nations. In this study, we employ counterfactual causal inference to examine the influence of government transfer payments on poverty. By utilizing data from China, we present new evidence that sheds light on related issues. Our findings reveal that transfer payments have a negative impact on the overall income of rural poor households. This can be attributed to a decrease in labor supply among rural poor residents who receive such payments, resulting in reduced wage income. Additionally, transfer payments lead to decreased expenditure on food and increased spending on healthcare. These changes in total income and consumption patterns indicate that China’s current transfer payment policy has short-term efficacy by meeting the basic living security needs of rural poor residents and improving their health conditions. However, the lack of significant changes in education spending suggests that transfer payments have little long-term effect.