What is the impact of community characteristics on conditional cash transfer programs?

Abstract: Conditional cash transfers are a poverty reducing tool that has gained popularity due to its success in increasing school attendance in developing countries. The Mexican program Oportunidades is a role model for this kind of programs and it is therefore of interest for policymakers to transplant this program structure to other countries. To successfully transplant such a program, it is of importance to understand which contextual forces are impacting a favourable outcome. This paper examines the impact of school quality and inequality on the outcomes of Oportunidades. For this, a fixed effects model is applied where school attendance is regressed on program effects, the Gini-index, pupil/teacher ratio and the interaction of these. The results, while not being robust, suggest that although the program would be positively affected by a simultaneous implementation of a school quality enhancing policy, the effect might not be large enough to justify this to tax payers. In terms of income inequality, the results indicate that the effects on the program differ between older and younger children. It seems like cash transfers potentially are more important in unequal societies but that benefits have to be larger in more equal ones in order to compensate for the opportunity costs of unskilled work.