Beyond electricity: The welfare effects of a residential electricity cash transfer in Vietnam

Abstract

Access to adequate electricity remains a challenge for poor households in many developing countries due to affordability constraints. Since 2011, the Vietnamese government has implemented a nationwide cash transfer program aimed at supporting electricity consumption among low-income households. Using panel household survey data and household fixed-effects models, we assess how this transfer affects the electricity consumption and household welfare of recipients. Overall, we find no significant effect of the transfer on electricity consumption for most beneficiaries, consistent with electricity’s low income elasticity and indicating that it is a necessity good. However, we find two important results. First, while the transfer has no significant effect on electricity consumption for recipients as a whole, it has a positive and significant effect for ultra-poor households. This suggests that electricity use among the ultra-poor is constrained more by liquidity limitations than by a lack of demand. Second, we find that recipient households reallocate part of the transfer toward education and other non-food needs, subsequently contributing to a reduction in expenditure-based poverty. This finding highlights the fungibility of income and suggests that subsidy design should take into account liquidity constraints and households’ consumption preferences.