The Impact of Conditional Cash Transfers on Poverty, Inequality, and Employment During COVID-19: A Case Study from Brazil

Abstract

The policy responses to the COVID-19 pandemic varied widely between countries. Understanding how effective these responses were is important to improve preparedness for future crises. This paper investigates how one of largest scale conditional cash transfer COVID relief policies in the world—the Brazilian Emergency Aid (EA)—impacted poverty, inequality, and the labor market amidst the public health crisis. We use fixed-effects estimators to analyze the impact of the EA on labor force participation, unemployment, poverty, and income at the household level. We find that inequality, measured by per capita household income, reduced to a historical low and was accompanied by substantial poverty declines—even as compared to pre-pandemic levels. Furthermore, our results suggest that the policy has effectively targeted those in most need—temporarily reducing historical racial inequalities—while not incentivizing reductions in labor force participation. Absent the policy, adverse shocks would have been significant and are likely to occur once the transfer is interrupted. We also observe that the policy was not enough to curb the spread of the virus, suggesting that cash transfers alone are insufficient to protect citizens.