Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2021-07-20
Number: 21-069/VI
Author-Name: Albert Jan Hummel
Author-Workplace-Name: University of Amsterdam
Author-Name: Vinzenz Ziesemer
Author-Workplace-Name: Erasmus University Rotterdam
Title: Food subsidies in general equilibrium
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%.
Classification-JEL: Q18, E64, H21
Keywords: uniform consumption taxes, general equilibrium effects, food subsidies
File-URL: https://papers.tinbergen.nl/21069.pdf
File-Format: application/pdf
File-Size: 717.412 bytes
Handle: RePEc:tin:wpaper:20210069