Cash transfers and labor supply: Evidence from a large-scale program in Iran

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Journal of Development Economics, ISSN: 0304-3878, Vol: 135, Page: 349-367

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Djavad Salehi-Isfahani; Mohammad H. Mostafavi-Dehzooei
Elsevier BV
Social Sciences; Economics, Econometrics and Finance
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This paper examines the impact of a national cash transfer program on labor supply in Iran. In 2011, Iran started monthly deposits of cash into individual accounts covering more than 70 million people and amounting to 28% of the median per capita household income. The payments were compensation for the sudden removal of hefty energy subsidies. The program has been heavily criticized for its disincentive for work, especially for the poor. We use panel data to study the causal effect of the transfers on labor supply using exogenous variation in the time households first started receiving transfers and in the intensity of treatment, which we define as the share of net transfers from the program in total per capita household expenditures. We find no evidence that cash transfers reduced labor supply, in terms of hours worked or labor force participation. To the contrary, we find positive effects on the labor supply of women and self-employed men.