Food Subsidies in General Equilibrium

Albert Jan Hummel and Vinzenz Ziesemer

No 9201, CESifo Working Paper Series from CESifo

Abstract: 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%.

Keywords: uniform consumption taxes; general equilibrium effects; food subsidies (search for similar items in EconPapers)
JEL-codes: E64 H21 Q18 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-agr, nep-cna and nep-isf
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Journal Article: Food subsidies in general equilibrium (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_9201

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