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Distributional Effects of Lower Food Prices in a Rich Country

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  • Johan Lundberg

    ()

  • Sofia Lundberg

Abstract

Controlling for differences in taxes and transportation costs, the Nordic Competition Authorities claims, in a report from 2005, that food prices are 11% higher in Sweden compared to the EU-15 countries. One explanation for this put forward in the report is the limited competition on this market which suggests there to be a potential for lower food prices. This paper focuses on distributional effects of a price decrease on food. Based on a simple model of household utility, the households demand for food is derived and estimated. Price and income elasticities for different income groups are then calculated based on these parameter estimates. Our results suggest that food is a normal good with an average income elasticity of approximately 0.18 and a price elasticity of 0.45. In addition, and of importance from a policy perspective, the results indicate the income elasticity to differ across income groups while price elasticities are constant. Copyright Springer Science+Business Media, LLC. 2012

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File URL: http://hdl.handle.net/10.1007/s10603-012-9193-x
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Article provided by Springer in its journal Journal of Consumer Policy.

Volume (Year): 35 (2012)
Issue (Month): 3 (September)
Pages: 373-391

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Handle: RePEc:kap:jcopol:v:35:y:2012:i:3:p:373-391
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100283

Keywords: Consumer behaviour; Credit cards; Food demand; Food expenditures; Household composition; D12; H31; R22;

Find related papers by JEL classification:

  • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
  • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
  • R22 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Other Demand

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