Unconditional cash transfers, child labour and education: Theory and evidence

We examine the impact of unconditional cash transfers (UCTs) on child labour and educational outcomes. We first develop a simple theoretical model where we explore how government transfers financed by labour income taxation affect household decisions on child labour and education. We then empirically examine the impact of Pakistan's Benazir Income Support Programme (BISP), which is the largest cash transfer program in South Asia, on child labour and school outcomes. We employ a regression discontinuity design (RDD) to estimate the average effect of the UCTs on child labour and school outcomes, and find that UCTs have a positive and statistically significant impact on school enrolment and grade promotion, but no impact on school dropout rates in the short run. The BISP policy intervention increases grade promotion amongst boys but not amongst girls. In the short run, the BISP substantially reduces dropout for boys but increases substantially for girls. With regards to child labour, we find that the BISP policy intervention has no impact on child labour in the short run; but in the medium to long run, cash transfers help to reduce child labour amongst boys as well as girls. In the short run, however, the BISP increases child labour amongst girls but not boys. These findings are largely consistent with our theoretical predictions and also robust to a series of robustness and sensitivity checks.