Predicting the cost and impact of cash transfer programmes: the power of microsimulation tools

Cash transfers to households are becoming an increasingly common policy instrument for reducing poverty, particularly in some countries of sub-Saharan Africa. However pilot schemes are not always modelled at their design stage to estimate whether the cash transfers would have an affordable impact on poverty if scaled up. This briefing note explains how to overcome this problem by using a simple microsimulation tool.

The tool uses household survey data to predict the costs and poverty outcomes of cash transfer programmes under different scenarios before any programme is launched. It can also simulate how the benefit will be distributed among households with different consumption levels or different household composition – something that is not possible with tools that use macro-level data such as national population data. The briefing note explains the key steps needed to use the tool and the issues that should be considered along the way.