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

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 $0.05, 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 7%.

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

JEL Classification: E31, H53, I38