The Functioning and Effect of a Cash Transfer Program in Indonesia

This paper examines the functioning, in terms of targeting, and the effect of a cash transfer program (BSM) on dropping out of school. The analysis, based on Susenas data 2013, reveals that the program has a very low reach and a number of eligible households are excluded. At the same time, there are inclusion errors and depending on the level of education, 50 to 70 percent of the beneficiaries are ineligible. Despite the low targeting performance, the analysis shows that the program has a positive effect on reducing the probability of dropping out of school at all levels education for children in the poorest quartile of the expenditure distribution. Specifically, among the poorest 25% of households, the program works towards reducing the drop out rate at around 21.8%, 29.2% and 85.4% at primary, junior and senior high school level, respectively. Based on the analysis, the paper concludes that the program should be maintained and targeting efficiency needs to be improved as the program has a meaningful effect for low-income households in terms of reducing the risk of dropping out of school.