Food subsidies in general equilibrium

Arbeitspapier

The Atkinson-Stiglitz theorem on uniform consumption taxation breaks down if prices are endogenous. This paper investigates the implications for optimal food subsidies in China. To do so, we build a general equilibrium model where low-skilled workers have a comparative advantage in the production of food. Food subsidies raise the relative demand for low-skilled workers, which reduces the skill premium and indirectly redistributes income from high-skilled to low-skilled workers. We calibrate our model to match key moments from the Chinese economy, including sectoral production and spending patterns that we obtain from micro-level survey data. Our results suggest that general equilibrium effects rationalize food subsidies in the range 5%-12%.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Tinbergen Institute Discussion Paper ; No. TI 2021-069/VI

Classification and Topics

• Classification: Wirtschaft ; Incomes Policy; Price Policy ; Taxation and Subsidies: Efficiency; Optimal Taxation ; Agricultural Policy; Food Policy
• Subject: uniform consumption taxes ; general equilibrium effects ; food subsidies

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hummel, Albert Jan ; Ziesemer, Vinzenz
• Event: Veröffentlichung
• (who): Tinbergen Institute
• (where): Amsterdam and Rotterdam
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/248753
• Last update: 10.03.2025, 11:42 AM CET