Cash transfer policies in developing countries: universal or targeted?

Abstract

This paper employs a heterogeneous-agent life-cycle model with inter-generational linkages calibrated to Brazilian data to compare Universal Basic Income (UBI) and Conditional Cash Transfer (CCT) policies. Both reduce short-term poverty, but the CCT, which is means tested and requires school attendance, fosters sustained growth through human capital accumulation, further reducing poverty and inequality for future generations. In contrast, the UBI leads to long-term declines in savings and education, reducing income and welfare while increasing poverty. Despite this, a UBI would be favored by the current generation under a democratic majority rule due to its more equitable short-term benefits.