What are the pros and cons of cash transfers and in-kind transfers from a government perspective ?
From the government’s perspective, there are a few pros to in-kind transfers, but there are also some fairly important drawbacks.
One of the major good points to in-kind transfers is that they are more certain to be used for the purpose for which they are meant. If we are talking about welfare-type programs, giving poor people food (or even food stamps) makes it much more likely that they will use the aid in the way it was intended. By contrast, a cash payment could be used in ways that would not seem to advance the government’s goal of getting people out of poverty. In addition, in-kind transfers can be used to help bolster parts of the economy. For example, the government can help farmers by buying food from them to be distributed as in-kind transfers.
The major negatives about in-kind transfers from the government’s point of view are the extra costs that go along with such transfers. If we are talking about food transfers, these can be very costly to the government. There needs to be a whole bureaucracy that decides what to buy, at what price, and from whom. There are costs involved in packaging the food, distributing it around the country, and storing it until needed. Workers need to be physically present to give the food to the recipients. None of these sorts of transactional costs are present with cash transfers.
Government benefits can be made through cash transfers and in-kind benefits. A cash transfer is when a person directly receives money from the government. An in-kind transfer is when the government provides a specific benefit to the person. There are advantages and disadvantages to both methods of distributing benefits.
Cash benefits have an advantage in that they can be used in any way the recipient sees fit. If an unexpected need arises, the money can be used to cover the expense of that need. The disadvantage of this method is that the money might not be used for the intended purpose for which it was given to the recipient. Recipients of benefits tend to prefer the cash transfer method because of its flexibility.
In-kind benefits ensure that the benefit will be used for its intended purpose. The government doesn’t have to worry about the benefit being used improperly or being squandered. The disadvantage of this method is that there is no flexibility to use the benefit for another, possibly more pressing need that may arise. Additionally, the government will need to create agencies to oversee the distribution of an in-kind benefit to ensure that compliance is occurring with the rules of the program. This can be more costly to administer than a program providing only cash benefits.