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 toward foods with higher nonnutritional attributes (such as 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, they may have had a negative impact for some households.
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© 2011 The President and Fellows of Harvard College and the Massachusetts Institute of Technology