Escaping from poverty trap: a choice between government transfer payments and public services

BACKGROUND: Anti-poverty has always been an important issue to be settled. What policies should be selected to help individuals escaping from the poverty trap: by directly offering transfer payments or indirectly providing public services? This paper is among the first to explore the effects of public anti-poverty programs system in China. METHODS: We Using unbalanced panel data of China Health and Nutrition Survey (CHNS) from 1989 to 2009, we demonstrate how the individual poverty status is determined through a four-staged simultaneous model. We choose the 3SLS (Three Staged Linear Squared) methodology to do the estimation. RESULTS: GTPs (Government Transfer Payments) don’t have positive effects on poverty reductions. The results demonstrate that GTPs increasing by 10% makes private transfer payments decrease by 3.9%. Meanwhile, GTPs increasing by 10% makes the household income decreased by 27.1%. However, public services (such as medical insurance, health services, hygiene protection etc.) have significantly positive impacts on poverty reduction. Public services share a part of living cost of the poor, and are conducive for people to gain higher household income. CONCLUSIONS: GTPs given by governments are not effective in reducing the poverty, as a result of “crowd-out effect” and “inductive effect”. However, public services are suggested to be adopted by governments to help the poor out of the poverty trap.