Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/245382 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 9201
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
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%.
Subjects: 
uniform consumption taxes
general equilibrium effects
food subsidies
JEL: 
E64
H21
Q18
Document Type: 
Working Paper
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