Inframarginal Grant Provision
Public transfers intended to increase total resource consumption fail if the transferred amount is less than what target households were already spending out-of-pocket on the target goods. Under such conditions, public grants act as pure income transfers rather than targeted input boosts.
Picture this
If a government grant provides $3 worth of basic school supplies, but a family was already spending $10 on those exact supplies, the grant is inframarginal. The family can easily reallocate $3 of its private budget to non-educational goods while keeping total educational supplies constant. This is like giving a grocery voucher worth less than a household's weekly food budget; the household simply uses the voucher for groceries and spends its freed-up cash on other needs.
What the evidence says
Only 12 percent of control group households reported spending less than the annual grant value (Rs 125/year) on their child's education, confirming the grant was inframarginal for 88 percent of households and easily offset.
- Who
- 100 control primary schools and matched households in rural Andhra Pradesh, India.
- How
- Household expenditure survey analyzing baseline and control group private education spending relative to grant value ($3 / Rs 125 per child).
What to do
Design targeted grant thresholds that exceed baseline private household expenditures when attempting to increase net consumption of specific educational inputs.
From the source
"We verify this by looking at household spending on education in the control schools and find that only 12 percent of households report spending less than Rs 125/year (the value of the grant) on their child's education, suggesting that the grant was inframarginal for most households and could be offset easily."
School Inputs, Household Substitution, and Test Scores