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The anatomy of behavioral responses to social assistance when informal employment is high

ISSNYear: 2021
AutorAuthor/s: Bérgolo, Marcelo , G.Cruces
EditorialEditorial: Journal of Public Economics
The disincentive effects of social assistance programs on registered (or formal) employment are a first-order policy concern in developing and middle-income countries. We study the impact of a conditional cash transfer (CCT) program in Uruguay on the employment of adult members in beneficiary households in a context of high informality. Our research design relies on the sharp discontinuity introduced by program eligibility rules around a poverty score threshold combined with longitudinal administrative data. We find reductions of about 6 percentage points (a 13% drop) in formal labor force participation among all beneficiaries and of 8.7 percentage points (a 19% drop) for single mothers. The implied elasticity of participation in the formal sector with respect to the net-of-tax rate is about 0.78 for the full sample and about 1.3 for single mothers...
 
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