Income vs price subsidy: policy options to help the urban poor facing food price surge

Abstract

PurposeThe purpose of this paper is to analyze and compare the costs of price and income subsidies when the food security policy targets the urban poor. The result may help policymakers choose a desired subsidy scheme to ensure food security for the urban poor facing food price surge.Design/methodology/approachThe analysis consists of three parts: constructing an empirical model on provincial panel data in 1993‐2009 estimating the impact of grain price on food security among urban residents by different income level; evaluating the potential costs of shifting to income subsidy aiming to maintain the real income levels of the low income, lowest income or the poor residents if grain price increases by 20 percent; and comparing with the cost of price subsidy to achieve the same policy goal.FindingsThe paper finds that, food price surge will hurt the urban poor much more seriously than the high income population; the rich residents may receive more benefit from price subsidy; and income subsidy has obviously a cost advantage while the targeted people benefit more.Originality/valueThe obvious value of the paper is to show that income subsidy is much more desired than price subsidy, if the policy goal is to help the poor during food price surge.