Do cash transfers reduce trust and informal transfers within communities?

Abstract

Cash transfer programs enter communities with existing informal safety nets that function through inter-household transfers. Formal transfers may reduce inter-household transfers by reducing needs, or perceived needs, among the vulnerable households, or they may increase inter-household transfers by giving more liquidity to poor households to provide transfers in response to idiosyncratic shocks experienced by other households in the community. If inter-household transfers affect trust levels within the community, then introducing a cash transfer program could affect community trust. We use a randomized controlled trial to test the impact of cash transfers on various measures of trust and informal safety nets within communities in Tanzania. We find evidence that the introduction of a cash transfer program increased trust as well as certain types of assistance across households (e.g., childcare). Although cash transfers reduced transfers from non-beneficiary households in the community to beneficiary households in the short run (after 1.75 years of transfers), those effects had disappeared by an endline survey conducted 2.75 years after transfers began. Taken together, our evidence suggests that formal cash transfer programs do not necessarily crowd out informal safety nets, and they may in fact boost trust and support across households.