Governments around the world transfer benefits to their citizens, sometimes as cash and sometimes in the form of in-kind transfers of goods and services. Some economists feel that cash benefits give the biggest boost to the happiness of the recipients, yet most governments choose in-kind transfers as the preferred way to control how aid dollars are used.
Cash Transfers are Unconditional
A cash transfer is simply a payment from the government to help improve the lives of its citizens. Examples of cash transfer programs in the U.S. include Social Security and unemployment benefits. Cash transfer payments can be made in a lump sum or in many smaller installments. Frequently these are termed unconditional cash transfers, because the government imposes no restrictions on how the aid money may be spent. Recipients can use the money any way their wish and have the greatest freedom over what goods and services they buy.
In-Kind Benefits Means Specific Goods And Services
An in-kind transfer is also a type of public spending to help specific populations. Unlike a cash transfer, it takes the form of specific goods and services, which recipients get for free or at a reduced rate. One example of a U.S. in-kind transfer program is Medicare, which subsidizes health care for senior citizens and the disabled. Veterans' benefits and Stafford student loans are other examples.
By giving in-kind transfers, governments specify how individuals must use public assistance dollars. For example, Stafford student loans can only be used to finance college education, and Medicare benefits only cover the medical costs of those who are taking care of their health. The major benefit is that the program administrator can be certain that the benefit is used for the purpose for which it is meant. On the other hand, in-kind programs have sometimes been deemed “paternalistic” because they dictate that people spend assistance money on things governments deem most necessary. Nevertheless, the vast majority of federal and state assistance programs are in the form of in-kind benefits.
Freedom of Choice
Through various pieces of research, economists have consistently found that cash transfers make the recipients happier than in-kind benefits. A lot of this is due to freedom of choice. An individual who receives unemployment benefits, for instance, is free to spend that money in any way, whether by defraying immediate living expenses or by investing the money. Some economists also feel it is more efficient to give cash directly to families and let them choose precisely which goods and services they need most.
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