Credit Constraint Budget Relaxation

Download image · 1200 × 630 PNG

In Simple Words

When a low-income family receives free school supplies, the money saved eases their tight overall family budget. Rather than spending every saved dollar to buy even more books, the family allocates the extra money to satisfy other urgent needs like nutrition, healthcare, or home repairs.

Pupils in Andhra Pradesh primary schools

No extra block grant
Comparison group
Extra block grant
Families offset 76% of the grant

Second year, when grants were expected. The 76% offset is estimated at average spending; how families used the saved money was not measured.

See source →

Research question

Policymakers assume poor, credit-constrained households will use public education transfers to expand overall educational consumption rather than redirecting funds. When public transfers relax a household's general budget constraint, families spread the gains across multiple competing basic needs rather than concentrating them on education.

Participants

37,004 student-year observations across 200 primary schools in rural Andhra Pradesh, India.

Study Design

Household survey tracking expenditure reallocations across credit-constrained families under randomized block grant exposure.

Results

Even among poor households with spending near baseline levels, 88 percent spent more than the grant amount (Rs 125/year), allowing anticipated grants to relax general budget constraints and result in a 76% private expenditure offset (elasticity of -0.21, p < 0.01).

Takeaway

Evaluate household-level liquidity and non-educational expenditure needs when designing in-kind educational subsidies for low-income populations.

Source and citation

See source →

Read alongside the research

Plain-English glossary

Original explanations, informed by the references below. Examples are illustrations, not data from the studies above. The research text stays unchanged.

Baseline

The starting measurements in a study. Researchers use these to compare what participants were like at the start with what happens later.

ExampleBefore a training programme starts, researchers measure workers’ earnings. That first measurement is the baseline.

GET-IT glossary · Baseline characteristics ↗Read more about baseline →

Related findings