Household Response to Income Changes: Evidence from an Unconditional Cash Transfer Program in Kenya

by Johannes Haushofery and Jeremy Shapiroz
Princeton University, November 15, 2013

57 pp. 854 kB

This paper studies the response of poor rural households in rural Kenya to large temporary income changes. Using a randomized controlled trial, households were randomly assigned to receive unconditional cash transfers of at least US$ 404 from the NGO GiveDirectly. The authors designed the experiment to address several long-standing questions in the economics literature: what is the shape of households’ Engel curves? Do household members effectively pool income? Are there constraints to savings? Do transfers generate externalities? In addition, the authors studied in detail the effects of transfers on psychological well-being and levels of the stress hormone cortisol.

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