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Do short-term unconditional cash transfers

change behaviour and preferences? evidence from
Indonesia

Ridho Al Izzati, Daniel Suryadarma & Asep Suryahadi

To cite this article: Ridho Al Izzati, Daniel Suryadarma & Asep Suryahadi (2023) Do short-term
unconditional cash transfers change behaviour and preferences? evidence from Indonesia,
Oxford Development Studies, 51:3, 291-306, DOI: 10.1080/13600818.2023.2204423

To link to this article: https://doi.org/10.1080/13600818.2023.2204423

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OXFORD DEVELOPMENT STUDIES
2023, VOL. 51, NO. 3, 291–306
https://doi.org/10.1080/13600818.2023.2204423

Do short-term unconditional cash transfers change behaviour

and preferences? evidence from Indonesia
Ridho Al Izzatia, Daniel Suryadarmab and Asep Suryahadic
a
SMERU Research Institute, Jakarta Pusat, Indonesia; bAsian Development Bank Institute, Tokyo, Japan; cSMERU
Research Institute, Jakarta Pusat, Jl. Cikini Raya, Indonesia

ABSTRACT ARTICLE HISTORY

Short-term unconditional cash transfers are used as a temporary mitiga­ Received 11 December 2021
tion strategy during adverse economic shocks. They can however, cause Accepted 29 January 2023
adverse unintended impacts on behaviour and preferences. We estimate KEYWORDS
the effect of receiving short-term unconditional cash transfers on beha­ Unconditional cash transfer;
viour, risk aversion, and intertemporal choice in Indonesia. The country behavioural effects;
first introduced the program in 2005 and continues to use it whenever intertemporal choice; risk
adverse economic shocks occur. With 15.5 million beneficiary households, aversion; poverty; Indonesia
the program remains one of the largest in the world. We use an individual-
JEL CLASSIFICATION
level longitudinal dataset spanning 1997 – 2014. To identify a causal
D10; I31; I38
relationship, we combine coarsened exact matching with difference-in-
differences. We find no evidence that the short-term unconditional cash
transfer affected beneficiaries’ behaviour or preferences. Together with
evidence of its positive impact in mitigating the impact of adverse eco­
nomic shocks, our findings show that short-term unconditional cash
transfers should continue to be part of the government’s portfolio of
social protection programs.

Introduction
Governments often rely on cash transfers as a policy tool to address poverty1. Cash transfer designs
are numerous but differentiated by the following characteristics: (i) targeted or universal; (ii)
conditional or unconditional; (iii) short-term or long-term. Out of these designs, short-term
unconditional cash transfers (UCT) are usually implemented to mitigate adverse impacts of shocks,
targeted at those who face the highest risk of falling or who have fallen into poverty. These programs
generally cease once the beneficiaries recover.
Studies find that even a short-term UCT could alter the behaviour of beneficiaries. An
unconditional one-year cash transfer experiment in Kenya, done either as a lump sum or
monthly payment, increased non-durable expenditure, assets holding, income, happiness, and
life satisfaction. The transfer was correlated to reduced stress, depression, and intimate
partner violence in the short term (Haushofer & Shapiro, 2016) and long after the payments
ceased (Haushofer & Shapiro, 2018). Bazzi et al. (2013) find that a temporary cash transfer in
Indonesia reduced weekly working hours by 1.7 hours per week among recipients in the short

CONTACT Daniel Suryadarma dsuryadarma@adbi.org Asian Development Bank InstituteKasumigaseki Building 8F, 3-2-5
Kasumigaseki, Chiyoda-ku, Tokyo 100-6008, Japan
Supplemental data for this article can be accessed online at https://doi.org/10.1080/13600818.2023.2204423.
© 2023 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.
This is an Open Access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives License (http://
creativecommons.org/licenses/by-nc-nd/4.0/), which permits non-commercial re-use, distribution, and reproduction in any medium, provided the
original work is properly cited, and is not altered, transformed, or built upon in any way. The terms on which this article has been published allow
the posting of the Accepted Manuscript in a repository by the author(s) or with their consent.
292 R. AL IZZATI ET AL.

term and 2.6 hours in the medium term. McIntosh and Zeitlin (2020) find that a one-time
cash transfer to Rwandan youth had no impact on employment status 14 months after the
transfer. However, they find that a larger transfer induced youth to work fewer hours. Baird
et al. (2018) find that UCT reduced employment and work hours among older workers.
Looking at health-related behaviour, White and Basu (2016) find that in Peru, conditional
cash transfer recipients increased their spending on alcohol by more than 55% and sweets by
10–40%.
In high-income countries, Brunette et al. (2013) measure insurance demand in Europe and
how the demand changes with government assistance programs. They find that demand is
highest when there is no government assistance and decreases as government support
becomes increasingly certain. Similarly, Kousky et al. (2018) use data from Florida and find
that increases in federal post-disaster assistance grants significantly decreased individual
insurance coverage.
Other studies find no significant effects of short-term UCT on behaviour, either contempor­
aneously or after it ceases. Altindag and O’Connell (2020) study the effects of large, temporary
income changes on consumption patterns, food insecurity, livelihood coping strategies, child well-
being, and health among Syrian refugees in Lebanon. They find no evidence of program effects six
months after the transfer ended. Although cash savings and the stock of durable goods increased
while receiving assistance, households liquidated and spent these assets during or soon after the
program ended. Baird et al. (2019) find that the short-term impact of a long-term UCT to girls in
Malawi dissipated within two years after program completion. Banerjee et al. (2017) find that a 14-
month program in Mexico had no impact on the beneficiaries’ employment status or hours worked.
Evans and Popova (2017) systematically review the evidence on the impact of cash transfer on
expenditure on temptation goods and find that these concerns are generally unfounded.
Notwithstanding the evidence of either positive or insignificant effects of cash transfer on
recipients’ behaviour, the policy debate around UCT often revolves around its potential adverse
effects. Cash transfer is often negatively perceived that it: (i) induces higher spending on alcohol or
tobacco; (ii) is fully consumed rather than invested; (iii) creates dependency, for example, by
reducing participation in productive work; (iv) increases fertility; (v) leads to negative community-
level economic impacts (including price distortion and inflation); and (vi) is fiscally unsustainable
(Handa et al., 2018). In Indonesia, the debate centred on whether cash handouts were appropriate
for poor households. The lack of conditions for UCT and lack of monitoring of transfer spending
made policymakers worry that beneficiaries would become dependent on handouts, less likely to
find work, and more likely to misspend UCT funds on non-productive goods like alcohol or
tobacco (World Bank, 2012).
We estimate the effects of two short-term UCTs in Indonesia on the recipients’ behaviour and
preferences. The two programs, BLT (Bantuan Langsung Tunai, or Direct Cash Transfer), intro­
duced in 2005, and BLSM (Bantuan Langsung Sementara Masyarakat, or Temporary Direct Cash
Transfer), implemented in 2013/14, each had between 15 to 18 million beneficiaries. They are
among the most extensive short-term UCT programs worldwide. We examine three behavioural
aspects: demand for informal insurance measured through participation in rotating savings asso­
ciation; consumption of temptation goods, specifically tobacco consumption; and labour market
attachment, measured through employment, work hours, and having side jobs. We also examine
risk aversion, measured through hypothetical games of financial risk, and intertemporal choice
through a simulation of immediate and delayed financial rewards.2
Our study provides several contributions. First, the impact of cash transfers on preferences is
rarely estimated, possibly due to data unavailability. Risk aversion and intertemporal choice are
essential concepts that influence economic and health decisions. These traits are influenced by
experiences of shocks, such as economic downturns or natural disasters (Cameron & Shah, 2015),
and by income levels (Moseley, 2001; Tanaka et al., 2010). Our study follows Handa et al. (2014) and
Handa et al. (2020), who estimate the impact of cash transfers on these traits. They find that a large
 OXFORD DEVELOPMENT STUDIES 293

UCT program in Kenya had no discernible effects on either trait, while a cash transfer program in
Zambia makes people more patient. However, the Kenyan UCT was a long-term program.
Second, we contribute to the literature by examining two short-term UCTs implemented
a decade apart in the same country. These programs had different targeting mechanisms (see
Section 2). More importantly, the BLT was the first cash transfer program in the country. Its
introduction was unexpected among citizens who were more used to in-kind transfers and
subsidies. There was also no information on whether such a program is a one-off. Eight years
later, during BLSM’s implementation, the public was already expecting cash transfers as
a government program. These differences in expectations may cause the two UCTs to have
a different impact on behaviour and preferences.
Our third contribution is evaluating the impacts between one and two years after the
programs ended. Thus, we estimate longer-term, likely permanent effects on behaviour and
preferences.
We use four waves of a household longitudinal dataset, the Indonesian Family Life Survey
(IFLS), that covers the periods before and after the BLT and BLSM programs. We use coarsened
exact matching on pre-program characteristics to address observable differences between program
recipients and non-recipients. We combine it with difference-in-differences to remove time-
invariant individual unobserved heterogeneity.
We find no evidence of behavioural or preference effects of BLT or BLSM. We also find no
evidence of effect heterogeneity by sex, education level, pre-program welfare level, or urban-rural
residence. Our results are robust to different specifications and do not seem biased by spillover
effects or sample attrition. Since neither BLT nor BLSM had any effect, we conclude that beneficiary
expectations or familiarity with cash transfers do not appear to mediate any effects. Finally, different
program benefits as a proportion of household expenditure also do not appear to affect behaviour
or preferences.
We organize the rest of the paper as follows. In the next section, we provide further information
on the UCT programs in Indonesia. Section 3 presents the data and estimation strategy. Section 4
discusses the findings, while Section 5 contains robustness checks. Section 6 concludes.

Indonesia’s unconditional cash transfer programs

Introduced in the last quarter of 2005, the BLT’s main objective was to reduce the impact of a fuel
subsidy reduction, hence an increase in domestic fuel prices, by reallocating the budgetary savings
as a direct benefit for poor and vulnerable households, most at risk from induced general price
increases (World Bank, 2017). The fuel subsidy reduction was necessitated by a steep increase in
international oil prices that caused a ballooning fuel subsidy in the government budget, given the
fixed domestic fuel prices. Initially, the poorest 30% of households received BLT. The first program
ran for one year, until September 2006. The UCT was then implemented several times, with
different names, whenever the government reduced fuel subsidies or the country faced an economic
downturn.
Figure 1 shows the years the UCT program has been implemented, the number of beneficiaries,
and the budget allocated. In 2005/2006 (BLT I), there were initially 15.4 million beneficiary
households before an increase to 18 million households. Each household received a transfer of
Rp 1.2 million for one year, provided quarterly (Rp 300,000 per transfer). The benefit is equivalent
to around 15% of quarterly expenditures for the average recipient (Bazzi et al., 2013). In 2008/2009,
BLT II was implemented to respond to the global financial crisis. This time, the transfer targeted
19 million households. The monthly benefit was the same but only provided for nine months
(equivalent to around 10.4% of monthly expenditures for the average recipient). The transfer was
again made in late June 2013 under a different name (BLSM) in two phases with a total transfer of
Rp 600,000 to mitigate the effects of another fuel subsidy reduction. In 2014/2015, the government
increased fuel prices to relieve the national budget. Consequently, 15.5–16 million households
294 R. AL IZZATI ET AL.

Figure 1. Target number of beneficiaries and government allocation budget for unconditional cash transfer. Source: World Bank
(2017)

received a cash transfer of Rp 1 million. The benefit of BLSM 2013 and 2014/2015 was 11% of
average monthly household expenditures (World Bank, 2017).

Beneficiary targeting mechanism

To determine the beneficiaries of BLT I, the Government of Indonesia used a poverty census
called PSE05 (Pendataan Sosial Ekonomi 2005 – social and economic data collection 2005),
implemented by Statistics Indonesia (Badan Pusat Statistik - BPS). First, BPS collected a list of
poor households from the heads of neighbourhood units throughout the country. The list
consists of 29% of all households in Indonesia. Then, BPS interviewed the households on the
list to determine their poverty status. The information collected includes house conditions,
education level, employment, consumption pattern, access to health services, and asset owner­
ship. Each household was given a poverty score based on these indicators and district-specific
weights. Based on the scores and pre-determined cut-offs, 15 million households were cate­
gorised as extremely poor, poor, or near poor. Later, due to some protests, the number of listed
households was increased to 19.1 million.
A similar survey was done in 2008 to target BLT II recipients, called PPLS 2008 (Pendataan
Program Perlindungan Sosial 2008 – data collection for social protection programs 2008). The
survey process and method were similar to PSE05. However, BPS enumerators only asked the heads
of neighbourhood units if there had been changes to the list of poor households from PSE05. If there
were changes, they only interviewed new households in the list and dropped households that had
moved, deceased, or no longer considered poor.
For the disbursement of BLSM, another poverty census was implemented in 2011 (PPLS
2011). Subsequently, PPLS 2011 became the single database for all social protection programs
called BDT (Basis Data Terpadu – Unified Database). The method and sampling frame in
PPLS 2011 were improved compared to PSE05 and PPLS 2008 (Tohari et al., 2019). PPLS
2011 used the Population Census 2010 as the sampling frame. The welfare of all households
in Population Census 2010 data was estimated using indicators and weights derived from the
National Socioeconomic Survey (Susenas). The BPS then interviewed 45% of households with
 OXFORD DEVELOPMENT STUDIES 295

the lowest estimated welfare level and collected their poverty indicators data. The data was
then analysed using district-specific proxy means testing to assess the households’ welfare
levels. Households in the lowest 40% of the estimated welfare level nationally were included
in the BDT.

Impact of BLT on welfare

We find two papers that evaluate the impact of BLT. Bazzi et al. (2013) find that a timely cash
transfer receipt is vital for consumption smoothing. If a cash transfer was timely, there was no
difference in per-capita expenditure growth between beneficiaries and non-beneficiaries. However,
a delayed receipt reduced the expenditure of beneficiaries by 7.5% points.
Yusuf and Resosudarmo (2008) use a computable general equilibrium model to assess the impact
of BLT on household income and expenditure. Their simulation results indicate that all households’
income and expenditure were adversely affected by the higher prices induced by the fuel subsidy
reduction. They find that BLT was sufficient to compensate for the adverse effects on the poor in
rural areas. However, the real expenditure of the urban poor still fell because of their dependency on
kerosene and transportation. Our current study on the impact of BLT on behaviour complements
these previous studies, which have focused mainly on the impact on household welfare.

Data and methods

We use the IFLS, a publicly available survey representative of 83% of the Indonesian population
(Strauss et al., 2016). The first wave, conducted in 1993, interviewed 30,000 individual respondents
from about 7,000 households in 13 of 27 provinces. The second and third waves were conducted in
1997 and 2000, respectively. The same household respondents were re-interviewed in late 2007 as
part of IFLS 4 and in late 2014 as IFLS 5. The IFLS has a low attrition rate. Strauss et al. (2016) point
out that 92% of households interviewed in 1993 were successfully re-interviewed in all subsequent
waves. We use 1997, 2000, 2007, and 2014 waves.
Since 2000, the IFLS has a specific module related to social assistance programs in Indonesia. The
module recorded the receipt of all government UCT programs between IFLS waves. We use this
information to construct the sample’s receipt of all UCT programs between 2000 and 2014.
Figure 2 shows the time horizon of IFLS data and UCT programs in Indonesia. The 2007 and
2014 waves were collected post BLT and BLSM. The IFLS 4 records 2,771 households (22% of the
sample) as BLT I recipients. Since the survey continued until mid-2008, the data show that 2% of
households received BLT II. Meanwhile, IFLS 5 shows that 1,800 households (12% of the sample)
received BLSM. The data also show that 60% of BLSM recipients received BLT II in 2008. The
timing indicates that we measure the impact of BLT I and BLSM between 12 and 24 months after
the programs ended.

Figure 2. Time horizon of IFLS data and cash transfer program disbursement.
296 R. AL IZZATI ET AL.

Estimation strategy
We aim to estimate the effect of receiving BLT I and BLSM on individual preferences and
behaviour. The identification challenge is that BLT I and BLSM targeted the poorest households.
Simply comparing the outcomes of recipients and non-recipients would lead to biased estimates.
We use two strategies to identify the impact of BLT I and BLSM.
First, we select non-recipient households with observably similar pre-program characteristics as
a control group. Practically, these households were the ones that suffered from undercoverage. They
should have received the program but, for some reason, did not. Like many targeted social
assistance programs in other countries, the UCT program in Indonesia also contains targeting
error, which includes undercoverage (or exclusion error) and leakage (or inclusion error).3 Using
Susenas, we calculate the exclusion and inclusion errors of BLT I and BLSM. The exclusion errors
for BLT I and BLSM were 47% and 66%, respectively. Their inclusion errors were 21% and 12%,
respectively. These were comparable to similar programs in other developing countries (Sumarto &
Bazzi, 2011). These stylized facts mean that the pool of observably similar individuals who did not
receive the cash transfers should be sufficiently large for us to find appropriate comparison groups.
Taking advantage of targeting errors to identify a control group follows the strategy used by
Sparrow (2007).
Second, we implement a difference-in-differences (DID) method to remove time-invariant
unobserved heterogeneity. An example of such heterogeneity is social networks, which could affect
both the probability of being listed as a recipient and behaviour. The identification assumption of
DID, parallel trends, is more likely valid given our matching and the notion that the control group
consists of eligible individuals who missed out due to a targeting error.
By combining these methods, we assume that once observable differences and time-invariant
unobserved heterogeneity are addressed, no more sources of bias are present. We describe both
processes in greater detail in the following two sub-sections.

Matching process
To implement the matching, we prepare our data as follows. The first dataset is an individual-level
longitudinal dataset from IFLS 2000 and 2007. The former covers pre-BLT I, and the latter post-
BLT I. The second dataset is also an individual-level longitudinal dataset, created from IFLS 2007
and 2014. It covers the pre- and post-BLSM.
We show the summary statistics on a set of household and individual characteristics between
cash transfer recipients (treatment group) and non-recipients (control group) for these two datasets
separately in Table 1. The comparison shows that those who received cash transfers are less
educated, poorer, reside mainly in rural areas, and have lower access to safe drinking water and
proper sanitation than non-recipients at baseline. A higher share of cash transfer recipients also
received other government programs. They are likelier to hold a government letter confirming that
they are poor (Surat Miskin) at baseline.4 Almost all covariates that we test are significantly
different.5
To balance the treatment and control group characteristics, we match the pre-program char­
acteristics between recipients and non-recipients based on recipient status in the post-program
dataset using Coarsened Exact Matching (CEM). We choose CEM because the method requires
fewer assumptions, is more easily automated, and possesses more attractive statistical properties for
many applications than other matching methods (Blackwell et al., 2009). The matching aims to
improve the estimation of causal effects by removing the imbalance in pre-treatment covariates
between treatment and control groups (Iacus et al., 2012). Finally, CEM calculates sample weights,
which we use in the regressions.
Specifically, for Dataset 1 we match individual characteristics in 2000 using the BLT I receipt in
2007. For Dataset 2 we match individual characteristics in 2007 using BLSM receipt in 2014. We use
 OXFORD DEVELOPMENT STUDIES 297

Table 1. Pre-matching characteristics at baseline, by UCT recipient status.

Characteristics in 2000 for treatment in Characteristics in 2007 for treatment in
2007 2014
(Dataset 1) (Dataset 2)
Mean of Mean of
control Difference to control Difference to
Variables group treatment group p-value group treatment group p-value
Poor status (yes=1) 0.11 0.16 0.00 0.04 0.08 0.00
Received assistance during 1998–99 0.01 0.01 0.00 - - -
Asian Financial Crisis (yes=1)
Received BLT I, BLT II, and other - - - 0.23 0.48 0.00
government cash transfers (yes=1)
Have card for the poor (yes=1) 0.05 0.04 0.00 0.10 0.10 0.00
Female (yes=1) 0.53 0.02 0.00 0.53 0.01 0.18
No schooling (yes=1) 0.08 0.12 0.00 0.07 0.03 0.00
Primary schools (yes=1) 0.37 0.18 0.00 0.34 0.20 0.00
Junior secondary schools (yes=1) 0.17 −0.02 0.00 0.18 0.03 0.00
Senior secondary schools (yes=1) 0.28 −0.18 0.00 0.30 −0.15 0.00
University (yes=1) 0.09 −0.09 0.00 0.11 −0.10 0.00
Other schools (yes=1) 0.01 0.00 0.12 0.01 0.00 0.96
House ownership (yes=1) 0.80 0.04 0.00 0.77 0.02 0.00
Safe drinking water (yes=1) 0.88 −0.05 0.00 0.76 0.03 0.00
Own toilet with septic tank (yes=1) 0.56 −0.30 0.00 0.68 −0.22 0.00
Have land for farming (yes=1) 0.37 0.00 0.93 0.33 −0.06 0.00
Urban residence (yes=1) 0.52 −0.18 0.00 0.52 −0.07 0.00
Notes: Number of panel observations in 2000 is 16,587 for control group and 5,117 for treatment group. Meanwhile, number of
panel observations in 2007 is 22,076 for control group and 3,443 for treatment group. The mean difference is conducted by
using simple regression that estimate the characteristic in initial year as listed above to the UCT status in treatment year.

Table 2. Coarsened exact matching summary.

Dataset 1 (2000–2007) Dataset 2 (2007–2014)
Non-recipient Recipient Non-recipient Recipient
(UCT=0) (UCT=1) Total (UCT=0) (UCT=1) Total
All 16,587 5,117 21,704 22,076 3,443 25,519
Matched 11,451 4,428 15,879 9,543 2,629 12,172
Unmatched 5,136 689 5,825 12,533 814 13,347

the variables from Bazzi et al. (2013) for the matching, as in Table 1. They find that these variables
significantly affect the likelihood of households to receive the UCT program. We also include
province-specific dummy variables in the matching. Note that since behavioural variables are at the
individual level, while cash transfer receipt is at the household level, we include all adults in the
households. As such, we assume that all household members benefit from UCT.
Table 2 shows the CEM summary. Our matched dataset contains 11,451 non-recipient and 4,428
recipient individuals for Dataset 1, out of the initial sample of 21,704 individuals. Meanwhile, for
Dataset 2, we match 9,543 non-recipient and 2,629 recipient individuals. The matched sample
retains 87% and 77% of all UCT recipients in the IFLS for Datasets 1 and 2, respectively. We have
1,287 and 1,313 strata for Datasets 1 and 2, respectively. Each stratum contains 2–3.4 recipients and
7–8.7 non-recipients.
Before matching, the multivariate imbalance (L1) is 0.56.6 After matching, it decreases to zero in
both datasets. Similarly, the imbalance of each covariate also decreases significantly.

Difference-in-differences (DiD)
After matching, we apply a difference-in-differences model as follows:
298 R. AL IZZATI ET AL.

where yit is the behaviour or preferences of individual i in year t. α0 is the constant, showing the
control group’s mean in the baseline period. tt is the period fixed effects that capture the outcome
differences across time. δi is the individual fixed effects. UCTi is the UCT recipient status, equal to
one for recipient households. The interaction variable UCTi � tt is the variable of interest, with β as
the magnitude of the UCT’s effect. Finally, εit is the error term assumed to be conditionally
independent of the regressors. Since we use individual panel fixed effects, we cluster the standard
errors at the individual level.
We estimate our model on the combined Dataset 1 and 2. To control the outcome difference
across datasets, we add a dataset fixed effect in the combined estimation.7 We also estimate
Equation (1) for Datasets 1 and 2 separately. We use ordinary least squares or linear probability
models depending on the dependent variable.8

Behavioural and preference indicators

The outcome variables are from the individual questionnaires each adult household member
answered. Table 3 shows the behavioural indicators that we include as outcome variables.
The first behaviour that we examine is the demand for insurance. For poor individuals, the
relevant measure for demand for insurance is informal insurance. Morduch (1999) finds that most
households in low-income countries rely on informal insurance due to a lack of a government safety
net. We use participation in an informal community-based insurance scheme called Arisan. It is an
informal community activity involving money saving among members (Rasyid et al., 2015;
Rutherford, 2001; Sedai et al., 2021). Members regularly contribute to a shared funding pool, taking
turns getting a lump sum payment from the pool. Takashino and Handoyo (2010) find that poor
Indonesian households rely on Arisan as a coping mechanism when experiencing a negative shock.
Therefore, they may stop participating if government assistance replaces the need for informal
insurance. We define Arisan participation as a binary variable, with a value of one if the individual
participated in Arisan in the past year.9
The second behaviour is related to the consumption of temptation goods, such as alcohol, sweets,
donuts, or tobacco. These goods may provide utility at the point of consumption but not afterward
(Banerjee & Mullainathan, 2010). Banerjee and Duflo (2007) find that poor households spend the

Table 3. Behavioural and preference indicators.

Non recipient UCT recipient
Std. Std.
Outcomes Obs. Mean Dev Min Max Obs. Mean Dev Min Max
Participate in Arisan (Yes=1, 37,270 0.262 0.440 0 1 12,566 0.239 0.427 0 1
0=otherwise)
Never or quit smoking (Yes=1, 37,270 0.663 0.473 0 1 12,566 0.633 0.482 0 1
0=otherwise)
Number of cigarettes (inverted) 9,960 0.143 0.146 0 1 3,864 0.144 0.139 0 1
Currently working (Yes=1, 37,270 0.748 0.434 0 1 12,566 0.749 0.434 0 1
0=otherwise)
Working hours (hours) 22,204 41.960 25.750 0 168 7,780 40.410 24.900 0 168
Have a side job (Yes=1, 0=otherwise) 22,342 0.278 0.448 0 1 7,822 0.296 0.457 0 1
Risk aversion (Set 1) - Standardized 14,666 −0.007 0.998 −1.953 1.046 4,160 0.009 0.993 −1.953 1.046
Risk aversion (Set 2) - Standardized 14,666 −0.014 0.993 −3.577 1.449 4,160 −0.005 0.945 −3.577 1.449
Intertemporal choice (Set 1) - 14,666 0.008 1.006 −0.571 2.849 4,160 0.024 1.022 −0.571 2.849
Standardized
Intertemporal choice (Set 2) - 14,666 −0.016 0.969 −0.468 4.748 4,160 −0.016 0.959 −0.468 4.748
Standardized
Note: The variables risk aversion and intertemporal choice are only available for Dataset 2.
 OXFORD DEVELOPMENT STUDIES 299

little that they have on these goods rather than investing in goods that provide positive returns in
the future. Consuming these goods is worse for the poor because it takes up a larger share of total
earnings. With low earnings, spending on temptation goods means that spending on more
productive but less tempting goods, such as children’s education and health, would be inefficiently
lower. Cash transfers will not achieve their intended impact if mainly used to purchase temptation
goods. We use current smoking behaviour as a proxy for the consumption of temptation goods.10
The variable is defined inversely to maintain consistency with other variables, where one is
a positive outcome, and zero is a negative outcome. Therefore, our variable takes the value of one
when an individual is not currently smoking or has completely stopped. We also use the variable
number of cigarettes consumed per day, estimated among smokers. This variable is also inverted to
maintain consistency with other variables.
The third behaviour that we consider is labour market attachment. Banerjee et al. (2017) show
that a UCT in Mexico did not impact the beneficiaries’ employment status or hours worked. The
authors argue that the income effects would have to be unusually large for the cash transfers to
affect labour market outcomes. Other studies we mention in section one find significant effects, but
not all of them do. We use a binary variable of working equal to one for individuals who worked at
least one hour in the previous week or for individuals with a job but temporarily not working in the
past week. We also use the total number of hours worked last week as the second outcome variable.
Since workers in Indonesia (especially the poor) primarily work in agriculture or the informal
sector and have a high likelihood of having multiple jobs, we sum all the working hours of the
workers for both the main job and all side jobs. We also use having side jobs as the third outcome
related to working behaviour.
For preferences, we examine risk aversion and intertemporal choice. Yesuf and Bluffstone (2009)
find that wealthier households in Ethiopia are less risk averse. In contrast, Tanaka et al. (2010) find
little relationship between household income and risk aversion. Levin and Vidart (2020) examine
adults in Indonesia and Mexico, finding that higher macroeconomic volatility increases risk
aversion. Cameron and Shah (2015) find that natural disasters in Indonesia increased risk aversion.
In our context, the removal of fuel subsidies was a negative income shock that simultaneously
introduced higher volatility. Receiving a UCT in this context reduces the exposure to shock. In
addition, it could change the expectations of income volatility or receiving government assistance in
the future. Therefore, we expect that receiving UCT could reduce risk aversion.
The IFLS has two sets of hypothetical games of financial risk aversion, using the staircase
instrument (Falk et al., 2018). A respondent gets a series of hypothetical high-stakes options
between a safe option (high aversion) and a risker option (risk taker). The safe option contains
a certain amount of money against the riskier option that offers a higher or lower amount of money
with equal probability. If the respondent chooses the risker one, then the next question increases the
gap of stakes being offered. The first set has relatively lower stakes. We follow Levin and Vidart
(2020) to construct the index based on hypothetical risk questions. The index is an ordinal value
from 1 to 5. A higher value means higher risk aversion.
Regarding intertemporal choice, Moseley (2001) notes that economics literature generally argues
that poor individuals focus more on survival rather than saving for the future. The author
empirically refutes the literature using evidence from African countries. Poor households undertake
extreme measures in the present to protect their future livelihoods. In contrast, Carvalho (2010)
finds that poor households in Mexico are highly impatient. However, the author notes that studies
in different contexts find conflicting results. In Indonesia, Jung et al. (2021) find that education
positively affects patience among women. Based on the literature and the empirical finding from
Handa et al. (2020), we expect the UCT to make individuals more willing to wait for future income.
The intertemporal choice questions in IFLS also employ the staircase instrument. A respondent
is given two options between immediate and delayed financial rewards. A larger value implies
higher patience. We construct the measure of intertemporal choice with values ranging from 1 to 4,
300 R. AL IZZATI ET AL.

similar to Jung et al. (2021). Following Falk et al. (2018), we standardise the variables by subtracting
the value from the control group mean and dividing it by the control group standard deviation.
To avoid overemphasizing and arbitrarily presenting the results, we use the approach by Kling
et al. (2007) to estimate the effect of UCT on a summary index of the outcomes. Its construction is
such that more beneficial outcomes have higher scores. The index is a z-score calculated by
subtracting each outcome from the non-recipient group mean and dividing by the non-recipient
group standard deviation. We then average all the z-scores of the outcome variables and standardise
the average relative to the non-recipient group. The index has an average of zero with a standard
deviation of one for the non-recipient group.

Estimation results
Table 4 shows the effects of receiving UCT on individual behaviour. From the pooled dataset (Panel A),
we find no evidence that UCT receipt affected behaviour. The coefficients on participation in Arisan,
smoking, and working status are all virtually zero and statistically insignificant. Similarly, among those
who are working, receiving UCT had no statistically significant effect on working hours. Among

Table 4. The behavioural effects of UCT.

(1) (2) (3) (4) (5) (6) (7)
Participate in Never or quit Number of cigarettes Currently Working Have Summary
Arisan smoking (inverted) working hours a side job index
A. Pooled Dataset 1 & 2
UCT X year 0.010 0.001 0.007 0.007 −0.600 0.006 0.021
(0.012) (0.008) (0.010) (0.012) (1.021) (0.019) (0.025)
Observations 49,836 49,836 13,824 49,836 29,984 30,164 49,836
Year fixed effect Yes Yes Yes Yes Yes Yes Yes
Individual fixed Yes Yes Yes Yes Yes Yes Yes
effect
Dataset fixed Yes Yes Yes Yes Yes Yes Yes
effect
Mean of control 0.262 0.663 0.143 0.748 41.96 0.278 0
group
Number of 24918 24918 6912 24918 14992 15082 24918
individuals
B. Dataset 1: IFLS 2000 & 2007 - BLT Program
UCT X year 0.009 0.003 0.019 0.013 −1.333 0.010 0.031
(0.015) (0.010) (0.014) (0.016) (1.288) (0.026) (0.033)
Observations 27,970 27,970 7,890 27,970 16,878 16,952 27,970
Year fixed effect Yes Yes Yes Yes Yes Yes Yes
Individual fixed Yes Yes Yes Yes Yes Yes Yes
effect
Mean of control 0.266 0.669 0.139 0.752 42.68 0.286 0
group
Number of 13985 13985 3945 13985 8439 8476 13985
individuals
C. Dataset 2: IFLS 2007 & 2014 - BLSM Program
UCT X year 0.011 −0.002 −0.012 −0.004 0.520 0.000 0.006
(0.018) (0.011) (0.014) (0.020) (1.629) (0.029) (0.039)
Observations 21,866 21,866 5,934 21,866 13,106 13,212 21,866
Year fixed effect Yes Yes Yes Yes Yes Yes Yes
Individual fixed Yes Yes Yes Yes Yes Yes Yes
effect
Mean of control 0.257 0.657 0.147 0.743 41.09 0.268 0
group
Number of 10933 10933 2967 10933 6553 6606 10933
individuals
Notes: Summary index is a standardized variable averaging from variable ‘Participate in Arisan’, ‘Never or quit smoking’, and
‘Currently working’. While the variable ‘Number of cigarettes’ is inverted and estimated only among smokers. And the variable
‘Working hours’ and ‘Have a side job’ are estimated among individuals who are currently working. Robust standard errors
reported in parentheses are clustered at the individual level. * p<0.05; ** p<0.01.
 OXFORD DEVELOPMENT STUDIES 301

Table 5. The effect of UCT on risk and intertemporal choice.

(1) (2) (3) (4)
Risk aversion Risk aversion Intertemporal choice Intertemporal choice
(Set 1) (Set 2) (Set 1) (Set 2)
UCT X year 0.002 −0.024 0.032 −0.038
(0.060) (0.057) (0.056) (0.053)
Observations 18,826 18,826 18,826 18,826
Year fixed effect Yes Yes Yes Yes
Individual fixed effect Yes Yes Yes Yes
Mean of control group −0.00700 −0.0130 0.00800 −0.0160
Number of individuals 9413 9413 9413 9413
Notes: Set 1 has relatively lower stakes than the Set 2. Robust standard errors reported in parentheses are clustered at the
individual level. * p<0.05; ** p<0.01.

smokers, UCT had no statistically significant effect on cigarette consumption. Column 7 shows the
summary effect. The estimate is negligible and statistically insignificant.
Panels B and C separately estimate the impact of BLT I and BLSM. They show statistically
insignificant and small estimates. The estimates are not significantly different, showing that the
impact of the later UCT, after Indonesia had implemented them for almost a decade, was similarly
muted as in the initial UCT programs. Therefore, even after the expectations of the beneficiaries
may have changed, we still do not observe any impacts.

Effect on risk aversion and intertemporal choice

Table 5 shows the estimation result of the impact of UCT on risk aversion and intertemporal choice.
This information is only available in Dataset 2. We find that the estimates are all small and
statistically insignificant.
One possible explanation for these results is that the amount of the cash transfer received
by households is too small, around 11–15% of total expenditure. To test this possibility,
instead of using recipient status as the independent variable, we estimate Equation (1) using
the cash transfer received as a proportion of baseline annual household per capita expenditure
as the explanatory variable. We construct this from information on the amount of benefit
received by the recipient households. Since all households received the same transfer amount,
the variation comes from the household per capita expenditure. The value ranges from zero,
since the non-recipient did not receive the benefit, to one. The latter implies that a household
relies entirely on the UCT. The sample mean is 0.05 and 0.03 for Datasets 1 and 2,
respectively.
Table A2 in the Online Appendix shows the estimation results. The results from Panel A for the
pooled dataset are similar to Table 4. However, Panel B shows a positive effect of receiving BLT I on
participation in Arisan. Individuals whose BLT benefit was equal to the baseline household
expenditure, indicating extremely poor households, increased their probability of participating in
Arisan by 6percentage points. The result suggests that UCT may have provided extremely poor
individuals with the upfront costs required to participate in informal insurance. The fact that
individuals use their formal social protection benefit to purchase informal insurance is an inter­
esting unintended consequence of the cash transfer.
However, the summary index in Column 7 of Panel B is not statistically significant. Similarly, we
find no significant effect of receiving BLSM on behaviour (Panel C), risk aversion, or intertemporal
choice (Panel D). Overall, we find that UCT had a limited effect on behaviour or preferences.
302 R. AL IZZATI ET AL.

Impact heterogeneity
Tables A3 and A4 show the impact heterogeneity estimates. We examine impacts by sex, education
level, consumption expenditure, and urban-rural residence. We use the pre-program levels to
construct these groups. In summary, we find no evidence of impact heterogeneity.

Robustness checks
A widely used test for common trends is the placebo test, where outcome variables from the
pre-program periods are used as dependent variables (Gertler et al., 2016). For Dataset 1,
we use IFLS 1997 and 2000. For Dataset 2, we use 2000 and 2007 data. Table A5 in the
Online Appendix shows the estimation results for the placebo test. All estimates are almost
zero and statistically insignificant, indicating that the parallel trend assumption is likely to
hold.

Estimation on household head and spouse sample

The UCT program in Indonesia is a household-level program. Usually, the person who receives the
transfer is the household head or spouse. We restrict the estimation only to that sample to see if the
effects differ for household heads and spouses. Table A6 shows the estimation results. We find no
evidence that UCT affected behaviour or preferences among household heads and spouses. These
results show that our estimates are robust to whether the recipient individual is responsible for the
household or other household members.

Spillover effects
Cash transfer programs could have a spillover effect on the outcomes of non-beneficiaries.
Angelucci and de Giorgi (2009) find a positive spillover effect. A conditional cash transfer program
in Mexico, Progresa, positively impacted the consumption of ineligible households in treated
villages. The mechanism is that ineligible households in treated villages received more informal
loans, more transfers from family and friends, and reduced their livestock and grains.
Meanwhile, Baird et al. (2013) find a negative spillover of cash transfers. While cash transfers
strongly reduced psychological distress among schoolgirls, there is strong evidence of increased
psychological distress among non-recipient schoolgirls in treatment areas. The effects dissipated
soon after the program ended. Filmer et al. (2023) find that a cash transfer in the Philippines
increased food market prices, resulting in higher stunting among non-beneficiary children by 34%.
Given our non-experimental context, estimating spillover is not straightforward. We use two
methods to test for the presence of spillover. First, spillover is more likely to happen between
neighbours. Our matching takes place at the provincial level. We check whether our results differ
when we match treatment and control groups in a smaller geographical area. The estimation results
when the matching is done at the district level are in Table A7. The estimates in Tables A7 and 4 are
qualitatively similar.
Second, the spillover size could be affected by the program coverage in each district. The
untreated individuals living in the districts with a higher program coverage would be more affected
than those with a lower program coverage. Therefore, if the estimates by program coverage rates
differ, we expect the former to be affected by spillover while the latter was not.
We divide our sample into four groups based on program coverage at the district level. We focus
on the group living in districts where program coverage was below 14% (25th percentile in the
distribution of program coverage). We also show the estimates for the group in the districts with
coverage above 33% (75th percentile). As shown in Table A8, we do not find any effect of the UCT
on all outcomes, either in low or high-coverage districts. The point estimates are also not
 OXFORD DEVELOPMENT STUDIES 303

statistically different. Based on these checks, we are confident that our estimates are robust to
spillover bias.

Sample attrition
Given our estimation strategy, our sample includes only individuals who appear in both IFLS waves.
However, our inferences could be biased if attrition is correlated with program receipt. In studies
using a randomized control trial, the difference in attrition rates between program recipients and
non-recipients indicates non-random attrition that may be related to the program. It may also
imply that the panel sample is not representative of the baseline sample. In our context, the
information on program receipt comes from the second wave. Thus, we cannot directly calculate
the correlation between the attrition status and program receipt, as usually done in randomized
control trials (Millan & Macours, 2017).
The attrition rates for individuals are 27% and 26% in Datasets 1 and 2, respectively. To test
whether attrition biases our estimation, we first examine the correlation between baseline char­
acteristics and attrition. Table A1 shows the results. Most baseline characteristics between the panel
and attrited sample are significantly different. Then, we use the estimates to predict the probability
of attrition for every observation. We create a weight, the inverse of the predicted probability
weight, to balance the baseline characteristics of the panel and attrited sample (Baird et al., 2019;
Giles, 2006; Peterman, 2011). We re-estimate Equation 1 by incorporating the weights to adjust the
attrition as a robustness check (Tables A9 and A10). The results are virtually identical to our main
estimation results.

Conclusion
Cash transfer is a widely used tool in the portfolio of social protection programs in many developing
countries. However, due to potential behavioural effects among the recipients, cash transfers may
bring about adverse outcomes, such as lower labour market participation, lack of insurance, or
consumption of temptation goods. The literature finds contrasting effects of cash transfer programs
with different characteristics. In this paper, we empirically examine the behavioural and preferences
effects of two large-scale short-term UCT programs in Indonesia between 12 and 24 months after
they ended. With 15 to 19 million recipient households, these programs are among the largest in the
world.
We find no evidence that receiving UCT changed the behaviour or preferences of the recipients.
Furthermore, we find no evidence of effect heterogeneity based on sex, education level, baseline
consumption expenditure, and urban-rural residential location. Finally, we find no evidence that
higher doses of UCT as a share of baseline household expenditure affect behaviour or preferences.
Overall, our findings support Banerjee et al. (2017), Evans and Popova (2017), Handa et al.
(2014), and other studies that find UCT has a limited effect on behaviour or preferences. However,
our findings are different from Haushofer and Shapiro (2016, 2018), McIntosh and Zeitlin (2020),
Handa et al. (2020), and other studies that find significant effects of UCT. The difference between
ours and the others is that our context is on short-term UCT with relatively small benefits.
This study has three limitations. First, the UCT programs we evaluate were not designed as
randomized control trials. Hence, we rely on quasi-experimental methods. Second, we could not
observe the immediate behavioural responses from the recipients. From a different perspective,
however, our findings are relevant to measure medium-term or even permanent effects of short-
term UCT. Third, the IFLS collected a minimal list of temptation goods, albeit the most important
ones.
The policy implication of our findings is that governments should continue using UCT pro­
grams to mitigate shocks without worrying about unintended consequences regarding the recipi­
ents’ behaviour or preferences. However, there are two important caveats. First, the size of the
304 R. AL IZZATI ET AL.

benefits may matter. Second, the governments need to make clear that the programs are temporary.
Maintaining the beneficiaries’ expectations is crucial to limit adverse behavioural or preferences
effects. Examining the behavioural effects of UCT programs with larger benefits and longer
horizons is the agenda for future studies.

Notes
1 Gentilini (Gentilini, 2019, 2020) shows that 1,042 studies on social protection were published in 2019. Most
focus on cash transfers. In 2020, 840 studies on cash transfers were published.
2 The use of the term intertemporal choice follows Handa et al. (2020) and Handa et al. (2014). Another term is
time discounting. Following the differentiation between time discounting and time preference in Frederick
et al. (2002), our focus is on time discounting. Jung et al. (2021), which use the same dataset we use, use the
terms time preference, time discounting, and patience interchangeably.
3 Exclusion error is the proportion of households that were eligible but did not receive the program. Inclusion
error is the proportion of households that were ineligible but received the program.
4 Surat Miskin or Surat Keterangan Tidak Mampu (SKTM) is a letter confirming poverty status issued by the
village office.
5 Note that the non-recipients in this table cover both the poor who were supposed to receive the program but
did not, and the non-poor who were not supposed to receive the program. On the other hand, the recipients
were also comprised of the poor who were supposed to receive the program and non-poor who were not
supposed to receive the program but did.
6 L1 is an indicator in CEM that shows the multivariate imbalance test result with value ranges from 0 (balance)
to 1 (imbalance).
7 We modify Equation 1 and estimate: yit ¼ α þ βUCTit � tt þ θtt þ δi þ @d � tt þ εit . The variable @d is
a binary variable with the value of 1 for Dataset 2 and 0 for Dataset 1.
8 We also estimate the model using panel probit estimation for binary outcomes and report the marginal effects.
The estimation results are shown in Table A11. The results are similar.
9 IFLS also collects information for formal insurance ownership such as private insurance (voluntary participa­
tion), employer-related insurance (mandatory participation), and social insurance (mandatory and subsidised
by the government). However, formal insurance ownership is very small in Indonesia, especially among the
poor. In IFLS, the ownership of private insurance is only 2% of the sample. Therefore, we rely on the informal
insurance indicator since we want to focus on voluntary insurance.
10 Because of data limitation, we find only two indicators in IFLS that fit the definition of temptation goods:
smoking (at the individual level) and alcohol consumption (at the household level). Since our focus is on
individuals, we use smoking as the proxy for temptation goods.

Acknowledgments
A previous version of this paper was published in the SMERU Working Paper Series (Al-Izzati, Suryadarma &
Suryahadi, 2020). We would like to thank Samuel Bazzi, seminar participants at SMERU, two reviewers, and the
associate editor for feedback. All remaining errors are ours. The views expressed are the views of the authors and do
not necessarily reflect the views or policies of Asian Development Bank Institute (ADBI), Asian Development Bank
(ADB), its Board of Directors, or the governments they represent.

Disclosure statement
No potential conflict of interest was reported by the authors.

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