Distributional Consequences of Rural Food Levy and Subsidized Urban Rations

33 Pages Posted: 27 Jun 2012

See all articles by Raaj Kumar Sah

Raaj Kumar Sah

University of Chicago

T. Srinivasan

affiliation not provided to SSRN

Date Written: June 1986

Abstract

In many developing economies, governments provide limited quantities of subsidized food rations to their urban population. This paper presents a positive analysis of the impact of such subsidy systems on the welfare of heterogeneous individuals within the urban and rural sectors, when the urban subsidy is funded through a levy on farmers. Though such an intervention has the appearance of a transfer from the rural to the urban sector, we characterize the conditions under which the opposite happens; that is, certain groups in the rural sector become better-off due to the intervention, while some of those in the urban sector become worse-off. Moreover, the rich turn out to be among the gainers while the poor are among the losers from the intervention. Such counter-intuitive outcomes arise not only because of the general equilibrium effects of the intervention, but also because a procurement cum rationing system entails particular types of price discrimination among individuals. In addition, we identify systematic patterns between the groups which gain versus those who lose from the intervention.

Suggested Citation

Sah, Raaj Kumar and Srinivasan, T., Distributional Consequences of Rural Food Levy and Subsidized Urban Rations (June 1986). European Economic Review, Vol. 32, No. 1, January 1988; Yale University Economic Growth Center Discussion Paper No. 505. Available at SSRN: https://ssrn.com/abstract=2085798

Raaj Kumar Sah (Contact Author)

University of Chicago ( email )

Chicago, IL 60637
United States
+1 773 288 1117 (Phone)

T. Srinivasan

affiliation not provided to SSRN ( email )

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