Measuring the effect of the disbursement mechanism for paying a government cash transfer in Chile, on eligible workers labour market and economic outcomes.

Cash transfer programs are one of the most widely adopted approaches to poverty relief across the globe, especially in Latin America. While research has examined the impacts of cash transfer program eligibility and benefit generosity on the labor market, very few studies have investigated the implications of the payment modality. This paper investigates the impact of a change in the payment modality of Chile’s Asignación Familiar (AF) on labour market and economic outcomes. The AF is a monthly cash transfer provided to low-income workers in the formal sector. Traditionally, AF benefits have been paid to workers via employers, who are later reimbursed by the state. We use an experimental design to investigate the impacts of changing this payment modality to a “direct pay” model in which the state directly transfers monthly benefits to eligible workers. Although it is assumed that workers receive the full amount of the AF benefit, in practice employers may share the gains by capturing a portion of the benefit. Thus, the change in payment modality may have both direct and indirect effects on the share of AF benefits eligible workers actually receive and possibly on their labor market behaviour.