JESS Seminar: The Effect of Quarantining Welfare on School Attendance in Indigenous Communities

We analyze the impact of a recent initiative by the Australian Government to reduce disadvantage in Aboriginal communities. The policy – known as income management – quarantines 50 percent of most income support and family assistance payments, and 100 percent of all lump sum transfers. Restricting welfare payments aims to ensure that households spend more on child-centred goods (e.g. food, housing, education), and less on goods with negative externalities on community safety and wellbeing (e.g. alcohol, cigarettes). We identify the causal impact of income management on school attendance rates by exploiting exogenous variation from the staggered rollout of this compulsory policy across communities. We focus on school attendance because it is a precise and high-frequency measure of community functionality. We find no evidence that income management increased attendance. Rather, the introduction of income management reduced attendance by 2.7 percentage points (4 percent) on average in the first five months after which attendance eventually returned to its initial level. The attendance penalty tended to be stronger for boys and secondary school students. We find no evidence that churning in student enrollments, increasing school transfers, or confounding with other policies caused the drop in school attendance. Conversely, the temporary drop in school attendance is likely due to implementation issues, as the attendance penalty associated with income management is lower after the adoption of more flexible administrative arrangements.