Household Responses to Food Subsidies: Evidence from India
June 9, 2014 10:00 AM
This week's featured paper from our Online Paper Collection is by Tara Kaul, University of Maryland. This paper uses household survey data to examine the effect of food subsidies on the nutritional outcomes of poor households in India. The national food security program, known as the Public Distribution System (PDS), takes the form of a monthly quota of cereals (rice and/or wheat) available for purchase at substantially discounted prices. The effect of the program is studied by exploiting the geographic and household size specific variations in the value of the subsidy that result from differences in state program rules and local market prices.
In agreement with other literature on food subsidies, this paper finds small elasticities for cereal consumption and caloric intake with respect to the value of the subsidy. However, households benefit from the program in terms of overall food intake and not just through cereals directly provided by the PDS. The elasticities for calories from all food groups are positive and significant. This is in contrast to studies on pure price subsidies for cereals which found zero or negative effects on caloric intake. Thus, the results in this paper suggest that quotas may be more effective than price subsidies at improving nutrition. Taking into account state level differences in the functioning of the program, a substantially smaller effect is found in states that have higher levels of corruption.
Read the full paper [PDF]