DO CONSUMER PRICE SUBSIDIES REALLY IMPROVE NUTRITION?

Many developing countries use food-price subsidies or controls to improve nutrition. However, subsidizing goods on which households spend a high proportion of their budget can create large wealth effects. Consumers may then substitute towards foods with higher non-nutritional attributes (e.g., taste), but lower nutritional content per unit of currency, weakening or perhaps even reversing the subsidy's intended impact. We analyze data from a randomized program of large price subsidies for poor households in two provinces of China and find no evidence that the subsidies improved nutrition. In fact, it may have had a negative impact for some households. (JEL I38; O12; Q18).