Effects of Public Transfers on The Financial Security of Rural Households: Evidence from Thailand

Abstract

Public transfers mitigate vulnerability and enable households to adapt to unforeseen shocks. The COVID-19 pandemic has revealed the inadequacy of the existing social safety nets for Thai rural households. This study evaluates the influence of public transfers in enhancing financial security strategies for poverty reduction. We applied two-stage least squares regressions to estimate poverty dynamics using Thailand Vietnam SocioEconomic Panel (TVSEP) from 2007 to 2022 in rural households in Thailand. This method was used to assess the effect of public transfers on building financial security by accumulating assets and diversifying income sources. The findings demonstrated that public transfers enhanced households’ livelihoods by offering immediate financial liquidity through the accumulation of savings. Public transfers safeguarded the preservation of land ownership, which served as a crucial asset for agricultural output. Nevertheless, the provision of public transfers hindered rural households from expanding their income sources through formal and self-employment because they were increasingly dependent on permanent public cash transfers. The study recommends public transfers as an indirect intervention for short-term relief. However, the government needs to exercise caution in preventing a budget burden as rural households may assume public transfers to be their main source of permanent income.