Government transfers to individuals are often given labels indicating that they are designed to support the consumption of particular goods. Standard economic theory implies that the labeling of cash transfers or cash-equivalents should have no effect on spending patterns. We study the UK Winter Fuel Payment, a cash transfer to older households. Our empirical strategy nests a regression discontinuity design within an Engel curve framework. We find robust evidence of a behavioral effect of labeling. On average households spend 47% of the WFP on fuel. If the payment were treated as cash, we would expect households to spend 3% of the payment on fuel.
The paper received the Atkinson Award for the best article published in the Journal of Public Economics during the period 2014-16.
Laura Blow and Cormac O'Dea receive their awards from the journal's editors, Erzo F. P. Luttmer and Wojciech Kopczuk