Do Consumer Price Subsidies Really Improve Nutrition?
CID Faculty Working Paper No. 160
Robert T. Jensen and Nolan H. Miller
Many developing countries use food price subsidies or price controls to improve the nutrition of the poor. However, subsidizing goods on which households spend a high proportion of their budget can create large wealth effects. Consumers may then substitute towards foods with higher non-nutritional attributes like taste, but lower nutritional content per unit currency, weakening or perhaps even reversing the intended impact of the subsidy. We present data from a randomized program of large price subsidies for poor households in two provinces of China. We find that the nutritional impact caused by the subsidy was at best extremely small, and for some households actually negative.
Keywords: price subsidies, consumption, poverty, economic development
JEL subject codes: I38, O12, Q18