Author Description

Administrative failures in anti-poverty programmes are widespread in developing countries. We focus on one such administrative failure - the persistent delay in paying beneficiaries on time in India's iconic anti-poverty programme, the National Rural Employment Guarantee Act (NREGA). Using a life cycle model, we argue that a long wage payment lag in this flagship programme could adversely affect the welfare of the poor through two channels. First, it imposes an implicit consumption tax on the household. Second, it lowers the human and financial net worth of the household and encourages increased household participation in the programme to clear off the initial debt burden. The loss of welfare persists even when the worker has outside employment options. Empirical evidence based on primary data lends support to our key theoretical prediction that wage payment delay encourages worker participation in the NREGA programme. Our findings suggest that a conventional measure of performance of an anti-poverty programme - such as higher NREGA participation of rural households - would be misleading because it does not necessarily reveal the welfare loss suffered by the asset-poor households who face a formidable wage payment delay.