Lighten the Burden: Assessing the Impact of the Indonesian For-Poor Students Cash Transfer on Spending Behaviors

Abstract

The Indonesian Government launched a for-poor students cash transfer program (Bantuan Siswa Miskin or BSM) to aid poor students in attaining goods and services necessary to support schooling activities. Recipients are given a freedom on how to spend the BSM cash, and ideally they should spend the cash for the intended purpose. However, the government does not have any control on how households spend the cash transfer. We evaluate the effect of the BSM program on household education spending using the 4th and 5th wave of the Indonesian Family Life Survey. To deal with the issue of endogeneity and the unobserved heterogeneity, we use BSM eligibility criteria set by Ministry of Education and Culture as instrumental variables and first difference estimation strategy. We find that BSM has a significant effect on household spending pattern by increasing the share of education spending. This study provides evidence that poor households use cash transfers according to the intended purpose even though there is no formal incentive to do so.

Keywords: Unconditional Cash Transfer, Education, Household Spending, Instrumental Variable