Mexico has two main government programs that transfer income to rural households. 

 

PROCAMPO, which pays a set amount per acre to farmers who grew basic grains in a base year prior to the elimination of guaranteed prices. Output price guarantees are no longer allowed under the old North American Free Trade Agreement (NAFTA), and this did not change with the new United States-Mexico-Canada Agreement (USMCA). The idea here was to replace the price support with a direct income payment to farmers, to compensate them for lower grain prices. Direct income payments are allowed, because unlike price supports, they are not expected to affect production. Most PROCAMPO payments go to corn farmers, big and small.

OPORTUNIDADES, a conditional welfare program that gives payments to poor women provided that their children are enrolled in schools and in the local clinic. This is the successor program to PROGRESA that we discussed in class. The idea is to combat poverty in the short run (by giving money to women) and in the long run (by making sure kids get the human capital they need to be productive and make an income when they get older). Because of the evidence generated by the first RCT that showed PROGRESA was a success, it has become a model for welfare programs in less-developed countries.

8. How would youexpecteach one of these public transfer programs to affect (i) inequality and (ii) poverty in rural Mexico?

Per-capita income. Would this change rural Mexico's position in the World Bank's categorization of countries by income level?

The Lorenz Curve. show a new Lorenz Curve with transfers. Has the distribution of income in rural Mexico changed? Is it more equal or less?

The Gini coefficient of inequality. By this measure, are government transfers effective at reducing inequality in rural Mexico?

The Headcount Poverty Index. By this measure, are government transfers effective at reducing poverty in rural Mexico?

The Poverty Gap. By this measure, are government transfers effective at reducing poverty in rural Mexico?

The Severity of Poverty Index. By this measure, are government transfers effective at reducing poverty in rural Mexico?

In percentage terms, is the effect the same using these three indexes? Where are government transfers having the biggest effect?