Family allowances and child school attendance. An ex-ante evaluation of alternative schemes for Uruguay Verónica Amarante Rodrigo Arim Gioia de Melo Andrea Vigorito Instituto de Economia Universidad de la Republica (Uruguay) This work was carried out with financial and scientific support from the Poverty and Economic Policy Network (PEP) - Poverty Monitoring, Measurement and Analysis (PMMA) PERSPECTIVES ON IMPACT EVALUATION: Approaches to assessing development effectiveness. 29 March –2 April 2009 Cairo

Main purposes of this ex ante evaluation - estimate the changes on school attendance (for the age group 14-17), income poverty and inequality -provide inputs for redesign -contribute to the regional debate on CCT and on the role and limitations of ex –ante evaluations

I. Background information In : temporary cash transfer program (PANES) Continuation: reshape of Asignaciones Familiares (AFAM), family allowances program created in 1942 This new AFAM shares some characteristics of other CCTs but is embedded in the social security system Main objectives: -expand the social protection network -increase attendance to secondary school -contribute to poverty and indigence alleviation Implementation will be gradual until mid 2009 aiming to cover 50% of the Uruguayan children aged 0 to 17 ( children)

Elegibility for the program is independent of adult contributory status Following the criteria used for PANES, households are selected on the basis of an income threshold and a proxy-means score. For those above the threshold the contributory regime still holds Conditional on school attendance for children aged 6 to 17. Benefits increase 40% (for the first child) when children attend secondary school Total benefit per household is calculated as: Main features of the new Asignaciones Familiares

II. Methodology Microsimulation based on the methodology developed by Bourguignon, Ferreira and Leite (2002) for Bolsa Escola The parameters required to carry out the simulation are obtained on the basis of two equations: school attendance and wage determination School attendance decision is taken at the household level, modeled as a discrete variable S i : –S i =0 if i does not go to school –S i =1 if i works and goes to school –S i =2 if i goes to school and does not work –Schooling decision as a function of a set of variables : Xi are the characteristics of individual i (age, sex, schooling, etc.), Hi are characteristics of household i (type of household, parental education, etc), Yij is household income i when choosing j and vij is the disturbance term (iid). The linearization of the model becomes the utility representation for the household of child i under the schooling choice j

Earnings wi can be modelled as: Combining these equations in the utility function of household of child i under each schooling option we can obtain the corresponding parameteres and carry out the microsimulation Assumptions BFL: income-pooling; occupational decisions made by adults precede child schooling decision; exogenous household structure; simultaneity of the decision in multi child households. This last is not taken here, we assume that for each child the marginal contribution is considered, and decisions are made according to age (the younger being the first) We use the 2006 household survey ( hh; children aged 14-17)

III. Results III.1 Basic equations First step: estimation of the wage equation and prediction of potential wages Second step: work and study decision. Independence of irrelevant alternatives rejected. We estimated a dogit model (Harris and Duncan 2002) instead of a multinomial.

Third step: calculate the microsimulation parameters and compute the differentials on child utility for non study, full-time study and study and work under alternative cash transfer designs. As a result, predicted changes in schooling are obtained. Three scenarios:

III.2 Effects on schooling, poverty and inequality All scenarios show an increase of around 10 % in school attendance. These results slightly improve the situation during PANES The work status of children also changes although the magnitude of the change cannot be directly estimated as long as the omitted group includes drop outs, despite their work status. Around 28.5 % of drop outs would return to school: higher proportion for girls (34.9%) than for boys (23.7%) ; BFL: 35% for Brazil Limitation: the model does not allow to isolate the effect of paying the transfer to different hh members: part of the effect can be attributed to transfer to siblings

In all scenarios the increase in school attendance is progressive: changes are higher for children belonging to the lower income strata At low income levels, drop out rates are higher and at the same time the incentive is bigger if measured by the share of the transfer compared to household income As a result, inequality presents a modest but statistically significant decrease

Effect on poverty reduction: around 6% Extreme poverty reduction: around 40%

III.3 Potential labor supply effects BFL do not include labor supply responses in their analysis We microsimulated behavioral responses of adult labor supply estimating a labor supply model for adults, although we do not fully endogeneize labour supply within the mode previously presented The estimated parameters are used to simulate the effect of the new transfer under the three scenarios considered. Three labor supply equations, with hours of work as dependent variable were estimated for households with children using a Tobit model, separating household heads, spouses and other adults The transfer variable includes PANES and the old asignaciones familiares

Non contributory transfers income: significant in the case of heads and spouses

Our results suggest that the cash transfer might produce a slight reduction of 2% in the hours of work of household heads and 2.7% for spouses at elegible households This outcome might be plausible considering the occupational profile of eligible households: domestic workers, in most cases engaged in different households for 2 or 3 hours a week and receiving an hourly wage. Results onpoverty and extreme poverty reductions may be slightly overestimated.

IV. Concluding remarks Simulations on schooling indicate that teenage attendance rates might be increased in 9 percent points as a result of the policy change. Around 28 % of the children who are out of the educational system would return to study. Moreover, 20% of those children that work and study would leave their present occupation to full-time study. This increase in school attendance shows a progressive pattern, as the effect of the program is higher for children belonging to the lower income strata. The transfer scheme reduces 40% indigence The fall in poverty incidence (5%) is milder but statistically significant. The reduction of intensity (13%) and severity (20%) is higher

It seems that the removal of conditionalities does not entail a significant change in the progressiveness of the regime but needs to be better studied as the effect of own transfers can be distinguished from the effect of transfers to siblings The program also contributes to a mild reduction in inequality but statistically significant. For all scenarios, Gini coefficients decrease around 0.6 points. This is similar to ex.-ante simulations on the introduction of income tax in 2007 Although the transfer contributes to improve households’ well being, the quality of education provided to these new students needs to be analyzed