Conditional Transfers, Labor Supply, and Poverty: Microsimulating Oportunidades

Abstract

Conditional Transfers, Labor Supply, and Poverty: Microsimulating Oportunidades annual budget of U.S.$2.1 billion. 2 The program served only rural families through 2002, when it began to incorporate the urban sector.Given the program's current size and reputation, administration officials cannot rely exclusively on ex post evaluations for judging the potential effects of changes in the program.A prospective instrument for steering the future development of Oportunidades is needed, and microsimulation techniques, such as those presented here, complement and expand what we have learned from the experimental and quasi-experimental program evaluations.Microsimulation exercises are a common instrument of policy analysis.Several literature surveys review the evolution and extension of these techniques applied to different fields.3 Bourguignon and Pereira survey different techniques for evaluating the distributional impact of economic policies.4 They classify these different techniques according to several perspectives: ex ante or ex post, accounting or behavioral, and partial equilibrium or general equilibrium.Ex ante simulations are performed before the program is enacted to predict the likely impact on chosen variables, whereas ex post simulations show what a program's effect would have been had it been designed differently.The accounting simulation simply modifies the variable under study (for example, transfers or subsidized prices) for the selected sample observations that comply with certain eligibility requirements.Distribution indicators for the database with modifications are then compared with the corresponding measures for the original data.The comparison of the real and counterfactual distributions allows analysts to infer the distributional impact of the hypothesized change in policy.However, individuals affected by policy changes are generally likely to modify their behavior (for example, labor supply or consumer demand) in response to the policy.A behavioral simulation, therefore, is one that seeks to predict the changes in economic behavior by the individuals subject to changes in the policy under study.Finally, a general equilibrium simulation takes into account the effects of changes in beneficiaries' behavior on other variables, such as the price of related goods, as well as changes in the behavior of individuals who are not subject to the policy but are affected by changes in the market as a whole.

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