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Abstract

Access to banks is rapidly increasing worldwide, and allows accountbased instead of cash transfers. We conduct a randomized experiment documenting the impact of the payment method on savings behavior. In India, we allocate identical weekly payments into a bank account (treated ) or in cash (control ). Savings in the account increase by 131 percent within 3 months, and the effect is long lasting. We also show that cash payments increase consumption and that—once everyone is paid in cash again—the savings patterns no longer differ. We interpret these findings as a default effect, and we further discuss plausible mechanisms.

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