Household Input Substitution
RCTReview
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.
Picture this
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.
What the evidence says
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).
- Who was studied
- 37,004 student-year observations across 200 primary schools in rural Andhra Pradesh, India.
- How
- Household survey tracking expenditure reallocations across credit-constrained families under randomized block grant exposure.
What to do
Evaluate household-level liquidity and non-educational expenditure needs when designing in-kind educational subsidies for low-income populations.
From the source
"With credit constraints, anticipated increases in school spending will alleviate the overall and period-specific budget constraint of the household resulting in greater current spending on all goods, including education."
School Inputs, Household Substitution, and Test Scores