Do school subsidies promote human capital accumulation among the poor?

Do incentives such as income transfers encourage poor parents to invest more in children’s schooling? What policies would increase human capital accumulation (or investments in education and health) by the poor? This paper examines the effects of school subsidies on intra-household allocations of income by the poor, and conducts an empirical analysis of the impact of a social program providing school subsidies for the poor in Mexico. The paper investigates the hypothesis that providing transfers to poor families on condition that their children attend school leads to a reallocation of household resources increasing human capital (or the productive skills acquired by an individual) of the children.

The model used in the paper treats schooling as one input in the production of children’s human capital. The paper states that school subsidies can lead to a:

• price effect: since school subsidies reduce the shadow price of acquiring education, it increases the level of spending on children’s schooling by poor households
• bargaining effect : since most school subsidy programs usually involve monetary transfers to the mother, changes in household expenditure patterns in favor of children could also be because of the increased bargaining power of the mother

The paper uses data from a conditional transfer program in Mexico, Progresa, which provides monetary and in-kind transfers to mothers in very poor families in exchange for regular attendance of their children to school and periodic medical check ups of children and adults. Based on empirical analysis, the paper finds that:

• larger schooling subsidies lead families to spend a larger share of resources on their children, beyond what is required to satisfy the conditions of the transfer
• price effects seem to account for a large fraction of the total impact of the program on the increase in expenditure on children

However, the paper states that some of the important effects of school subsidies may have to do with inter-temporal incentives for household allocation. For instance, the paper cannot explain why providing conditional income transfers leads to an increase in the time spent by primary school children doing homework. The paper recommends that further research is required in this area.