Universality and Conditionality in Cash Transfer Programs: Lessons from the COVID-19 Stimulus

Abstract

COVID-19 caused a global health crisis on an unprecedented scale. As countries around the world raced to contain the virus with lockdowns, quarantines, travel restrictions, and social distancing measures, disruptions also reverberated throughout the global economy, leading to widespread unemployment and a sharp decline in global GDP. In response, governments spent massive sums on fiscal measures, with the hopes of hastening recovery and providing relief to those in need. One common measure involved the provision of direct cash transfers to households. Direct cash transfers are not a new economic tool, but the pandemic marks the first time they were administered on a universal or nearly universal scale, with few or no conditions attached. As such, it provides a unique vantage point from which to study the impact of broad-based unconditional cash transfers as an economic tool. This paper evaluates the effectiveness of the Economic Impact Payments (EIPs), a series of three unconditional cash transfers that were extended to the vast majority of households in the United States. First, it examines how effective EIPs were in achieving their primary objectives of stimulating economic activity and providing relief to those in need. Second, it examines their impact on inflation and inequality. From these observations, lessons are drawn about how cash transfer programs can be better designed. The paper concludes that universality and unconditionality are not ideal for permanent transfer programs, but may be warranted temporarily if the paramount goal is getting quick relief to those in need during pandemic-like disruptions.