Predicting the Cost and Impact of Cash Transfer Programmes: The power of microsimulation tools

Oxford Policy Management has recently published a briefing note on using a micro-simulation tool to predict the cost and impact of cash transfer programmes.

Cash transfers to households are becoming an increasingly common policy instrument for reducing poverty in some countries of sub-Saharan Africa. This Briefing Note describes a simple ex-ante ‘microsimulation’ tool to determine whether launching a cash transfer programme will have an affordable impact on poverty.

The tool uses household survey data to predict the costs and poverty outcomes of cash transfer programmes under different scenarios before any programme is launched. It can also simulate how the benefit will be distributed among households with different consumption levels or different household composition – something that is not possible with tools that use only macro-level data such as national population data.

The Briefing Note explains the key steps required to use a microsimulation tool. These include:
• Deciding the scenarios to be modelled;
• Obtaining the micro- and macro-level data;
• Creating variables in the household survey dataset that act as markers for each scenario;
• Modelling the effect of the programme using the household survey data.