The Effects of Conditional Cash Transfers on Work Incentives of the Mexican Rural Population: Does Oportunidades Create Income Dependency?

Abstract: The Conditional Cash Transfer (CCT) program “Oportunidades” has proven to be effective in improving access to education and health services for the poor in Mexico; however, the studies of the program’s impact on the work incentives of its rural indigenous participants are practically inexistent. For this reason, by applying a propensity score matching methodology, this research analyses the impact of Oportunidades on the labor supply of the indigenous and non-indigenous living in rural areas. The Average Treatment Effect estimates suggest that the positive income shock created by the CCT, does not affect the work incentives for any of the rural participants. Therefore, the hypothesis that the program creates the unwanted outcome of people working less and becoming dependent on the transfers (situation that would reduce the likelihood of the program alleviating poverty in the short-term) is rejected.