How Do Government Transfer Payments Affect Retail Prices and Welfare? Evidence from SNAP

78 Pages Posted: 18 Sep 2017 Last revised: 3 Sep 2020

See all articles by Justin Leung

Justin Leung

National University of Singapore (NUS)

Hee Kwon Seo

University of Chicago, Booth School of Business

Date Written: November 14, 2019

Abstract

We study the effect of the Supplemental Nutrition Assistance Program (SNAP)
on retail prices nationwide. Program adjustments at the state level motivate our
identification strategy. A 1% increase in benefits per population raises grocery prices by
a persistent 0.08%. A calibrated partial-equilibrium model implies a marginal benefit
dollar raises a recipient’s consumer surplus from groceries by $0.7, producer surplus
by $0.5, and lowers each non-SNAP consumer’s surplus by $0.06, because of a large
marginal-propensity-to-consume-food out of SNAP, low elasticities of demand, and
market power. To guarantee the real intended spending power on food, benefits should
be increased by 10%.

Keywords: Consumption, SNAP, food stamps, incidence, prices

JEL Classification: E31, H53, I38

Suggested Citation

Leung, Justin and Seo, Hee Kwon, How Do Government Transfer Payments Affect Retail Prices and Welfare? Evidence from SNAP (November 14, 2019). Available at SSRN: https://ssrn.com/abstract=3036713 or http://dx.doi.org/10.2139/ssrn.3036713

Justin Leung (Contact Author)

National University of Singapore (NUS) ( email )

15 Kent Ridge Drive
Singapore, 129799
Singapore

Hee Kwon Seo

University of Chicago, Booth School of Business ( email )

Chicago, IL
United States

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