Plamen Nikolov
Matthew Bonci

Precipitated by rapid globalization, rising inequality, population growth, and longevity gains, social protection programs have been on the rise in low- and middle-income countries (LMICs) in the last three decades. However, the introduction of public benefits could displace informal mechanisms for risk protection, which are especially prevalent in LMICs. If the displacement of private transfers is considerably large, the expansion of social protection programs could even lead to social welfare loss. In this paper, we critically survey the recent empirical literature on crowd-out effects in response to public policies, specifically in the context of LMICs. We review and synthesize patterns from the behavioral response to various types of social protection programs. Furthermore, we specifically examine for heterogeneous treatment effects by important socioeconomic characteristics. We conclude by drawing on lessons from our synthesis of studies. If poverty reduction objectives are considered, along with careful program targeting that accounts for potential crowd-out effects, there may well be a net social gain.

Publication Type
Working Paper
File Description
First version, March 2020
JEL Codes
D64: Altruism; Philanthropy
H31: Fiscal Policies and Behavior of Economic Agents: Household
H55: Social Security and Public Pensions
J14: Economics of the Elderly; Economics of the Handicapped; Non-labor Market Discrimination
J22: Time Allocation and Labor Supply
J26: Retirement; Retirement Policies
O15: Economic Development: Human Resources; Human Development; Income Distribution; Migration
O16: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
R20: Household Analysis--General
life cycle
social protection
developing countries
crowd-out effect
inter vivos transfers