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February 05, 2013

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Can you elaborate on why and with whom the plan is unpopular in Venezuela? Cash dividends seem like a winner to me.

I am not an economist, but it seems to me as if large cash distributions would lead to heavy inflation. Perhaps the system could be set up to pay pensions instead of dividends, as in Norway.

In 2006, Manuel Rosales, an opposition candidate, proposed to give everyone black debit cards that would give a direct share of the oil rents. It proved unpopular. Here is the explanation from Rodríguez et al:

“To the surprise of Rosales and most political analysts, the proposal was met with pervasive ejection, particularly amongst the poor, suggesting that Venezuelans adverse direct distribution of oil rents. However, with the benefit of hindsight, this conclusion now seems unwarranted. It turns out that prior to Rosales launching Mi Negra, a majority of the population favored some form of direct distribution according to polling studies. When Rosales launched Mi Negra, support for direct distribution fell dramatically, suggesting that Mi Negra was not judged according to its merit but instead according to who proposed it. While conjectural, the explanation is consistent with the political polarization that was prevalent at the time.”

2011 focus groups found support for the proposal, but it depended on the wording: people worried that the system might be discretionary rather than universal. When wording was used to assuage them on that point, they preferred health and education vouchers, since they worried that other people would spend the money badly.

Nobody liked the idea of pensions, but that might have been because the group was all under age 40.

As for inflation, by itself ceteris paribus the proposal should not be inflationary. The Venezuelan government will stop spending by roughly the same amount that is transferred to individuals. If they save some of their windfalls, total spending might even decline.

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