Entrepreneurship on a Safety Net: Evidence from the World's Largest Cash Transfer Program

Do social transfer programs boost entrepreneurship among low-income populations? We address this question by examining Brazil’s Bolsa Fam´ılia—the world’s largest cash transfer program—and its effects on entrepreneurial entry, performance, and economic mobility. Using administrative data covering 2.3 million sole-proprietorships, we track entrepreneurs through the complete business lifecycle—from entry through performance to post-failure employment. We address selection combining instrumental variables—exploiting bunching across program eligibility thresholds—with matching and granular fixed effects. We first show that cash transfers increase transitions into entrepreneurship from both non-employment and wage employment, increasing beneficiaries’ representation among entrepreneurs. We then identify systematic performance disadvantages: cash-transfer entrepreneurs exhibit lower survival, business growth, employment creation, and credit access, eventually facing higher rates of tax violations and debt collection proceedings. Performance gaps appear to reflect two mechanisms: managerial constraints—evident in hiring less-educated workers at higher wages with stable employment—and dependency effects revealed by income bunching to maintain eligibility. Yet these same hiring patterns, along with stronger recruitment of racial minorities, produce positive spillovers extending beyond cash-transfer recipients. Examining post-entrepreneurship trajectories, we find that cash-transfer entrepreneurs secure worse jobs after business failure—lower occupational attainment and reduced earnings. However, their wage losses are 61% smaller than those of other failed entrepreneurs—suggesting the entrepreneurial experience builds human capital that disproportionately benefits cash-transfer participants. Our analysis—the first to track cash-transfer entrepreneurs through entry, performance, and post-failure outcomes—reveals that while these programs succeed at poverty alleviation, the businesses they create remain trapped in subsistence, generating neither growth nor pathways to economic mobility.