Prioritizing Health and Food: Social Assistance and Family Consumption in Rural China

Background and Purpose: In 1999, the Chinese government implemented the Minimum Livelihood Guarantee (Dibao) to provide means-tested cash transfer to the poor living below the poverty threshold in urban areas. In 2007, it was implemented nationwide in rural areas. Dibao has become one of world’s largest cash transfer welfare programs, with 53 million rural residents and 21 million urban residents receiving benefits in 2013.

Most existing studies focus on examining the effects of urban Dibao on reducing poverty and inequality, as urban Dibao has been implemented for a longer time. This paper investigates possible influence of rural Dibao on poverty amelioration through examining the association between rural Dibao and household consumption. The research adopts a propensity score matching (PSM) method to examine the association between Dibao and family expenditures by using the China Household Income Project (CHIP) 2013 rural dataset.

Methods: We restrict the sample to households whose per capita income is equal to or less than 1.5 of the 2013 national rural poverty line of 4,104 yuan (based on 2,736 yuan in 2013), leaving the analytical sample size to be 1,684 households. 242 (14.37%) of those households received Dibao benefits. All consumption items are measured at household per capita values.

Our PSM is carried out in the following steps. First, we use a logit regression model to predict the propensity score of receiving Dibao benefits. The study matches Dibao recipients with non-recipients by using a radius matching method with a caliper of 0.01. Second, regression models are used to estimate the effect of receiving Dibao on total consumption and nine specific consumption categories, namely food, tobacco and alcohol, clothing, housing, transportation/communication, health, education, fixed assets for agricultural production, and other goods and services. Third, a sensitivity test is performed to estimate the effects of Dibao on households whose per capita income is equal to or less than twice of the 2013 national rural poverty line.

Results: Results show, despite only a small, and statistically non-significant, increase in total family consumption due to Dibao, recipient families shifted their consumption patterns by prioritizing health and food over other expenses. The boost for health expenditures was especially large, while that for food expenditures was modest. Different than previous literature, which found that urban Dibao was associated with an increase in education consumption, our results indicate rural Dibao was unable to promote education investments for its recipients.

Conclusions and Implications: Due to the small amount of Dibao benefits relative to both the average consumption level in the society and the survival and other essential needs of recipient families, rural Dibao was unable to lift the total consumption of recipient families. Compared to the recipients of urban Dibao, who prioritized spending on education and heath, rural Dibao recipients prioritized on health and food, but not education. This may be partly due to the widening gap in returns of education between urban and rural areas. Potential explanations for the changing consumption patterns and policy implications are discussed at the end of the study.