Determinants of Expenditure Patterns of Unconditional Cash Transfer Receipts in Kenya

Abstract

Cash transfers take different forms -- unconditional or conditional. Higher- and middle-income Kenyans support the poor through cash and in-kind transfers. These private/individual transfers supplement the Government’s own cash and in-kind transfer programmes. Non-profit institutions and corporate sector are also involved in cash and in-kind transfers. However, some policy makers and others are skeptical about the viability of unconditional cash transfer programmes. They fear that poor households will use such cash transfers to buy alcohol, tobacco, or other “temptation goods.”This paper aims at: establishing the determinants of the items on which unconditional cash transfers are spent at the household level; determining if the concern often expressed by policy makers and others that poor households will use cash transfers to buy the so called “temptation goods” is justified; and determining if a case can be made for unconditional cash transfer in Kenya. We employed a multivariate regression technique to establish the determinants of cash transfer expenditures, using nationally representative household survey data.

Our findings show that unconditional cash transfers are spent on food, education/school fees, health, investment/business, rent/housing, clothing, debt repayment, and others. Overall, households in Kenya seem to make “sensible” decisions in their expenditure of such income. They spend the money on items that are in line with their socioeconomic situation. The highest proportion of such income is spent on education which they consider as investment in human capital of their children. Next is expenditure on food and the pattern is consistent with our prior expectations. Expenditures on the so called “temptation goods” seem to be very small, if at all. These key priority expenditure patterns seem to invalidate the concern that cash transfers may be just “handouts” that promote purchase of the so-called “temptation goods” in addition to leading to dependency. Factors that influence how the recipients spend the cash include the household’s poverty severity rating, food poverty rating, location (urban or rural), nutritional status and gender and education level of head of household.In light of the above findings, when planning and executing government’s social protection programmes, the recipients should be given greater say than has been the case hitherto. During the disruptive times, there are opportunities for innovation in policy formulation and management of cash transfer programmes, especially the unconditional ones. The Government, donors, corporate and NGO sectors should be open to such innovations and the beneficiaries should be given lee-way in deciding how to spend the money, especially in disruptive times. This would improve effectiveness and sustainability of such programmes.

Keywords: Cash transfer, multivariate regression, E-Views, pooled panel data

DOI: 10.7176/JESD/13-4-05

Publication date: February 28^th 2022