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# **2 Spending and Earnings in Rural Tanzania and China**

To explore the link between spending behavior and sources of income in Tanzania, the study uses the information collected under the Vulnerability Household Panel conducted in rural Kilimanjaro and Ruvuma, two cash crop producing regions in eastern and southern Tanzania respectively. Kilimanjaro is a richer and better connected region in Tanzania, situated in the north east and bordering Kenya. Ruvuma is in the south, bordering Malawi, and is poorer, geographically more remote, and ethnically distinct.<sup>14</sup> About 900 households, representative of all agricultural households, were surveyed in each region in 2003/4, 2004/5 and 2009.<sup>15</sup> Most modules, including the income and expenditure modules used here, are identical across survey rounds.

Income is coded into two categories, earned and unearned income, based on the effort involved in obtaining it. Earned income includes farm income, wage income, and business income. Unearned income includes transfers, remittances, gifts and pension<sup>16</sup> . Farm income makes up about two thirds of earned income in both regions (62% and 65% in Kilimanjaro and Ruvuma respectively) (Tables 1 and 2)<sup>17</sup> . Remittances are the most important unearned income, accounting for about half of the unearned income (47% in Kilimanjaro and 53% in Ruvuma). About 57% of the households in Kilimanjaro and 25% of the households in Ruvuma report having received unearned income. Unearned income exceeds earned income only for a few households (11% of the households in Kilimanjaro and 2% of the households in Ruvuma). Among those whose unearned income is strictly positive, but smaller than their earned income, it amounts on average to between 8% and 10% of earned income.

Both earned non-farm income and unearned income can be split up by the gender of the person receiving it. This is useful to probe whether potential differences in spending from earned and unearned incomes are driven by differences in preferences among gender and intra-household dynamics. Among the households in Kilimanjaro, more than 50 % of their male adults and about 32% of their female adults earn non-farm income, with men on average

> 14 The sample was designed to be representative of all agricultural households in rural Kilimanjaro and Ruvuma. Christiaensen and Sarris (2007) and Christiaensen and Pan (2010b) provide a detailed description of the survey and sampling design and a full socio-economic characterization of the regions. 15 While attrition was limited during the second round, it was more severe in the last round (772 households interviewed in Kilimanjaro and 667 in Ruvuma).  The sampling weights have been corrected accordingly, using the inverse of the probability of being interviewed in round 2 or 3 as correction factor. See Christiaensen and Pan (2010b, 2012) for details about the attrition treatment.

> 16 The inclusion of pension in the unearned income category is motivated by the large time lag between earning and receiving pension. This has arguably induced some emotional disconnect.  Nonetheless, the robustness of the results to excluding pensions from unearned income will be checked.

> 17 In Table 1 and 2, means are calculated without the top 1% of each variable. Therefore the summation of the means of all sub-categories of income is not equal to the average income.