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Subsidizing Fruits and Vegetables by Income Group: A Two-Stage Budgeting Approach

Listed author(s):
  • Niu, Luyuan
  • Wohlgenant, Michael

This paper investigates how a price subsidy affects demand for the three fruit and vegetable products for two income groups of households. This study combines the results of conditional elasticity estimates from previous study and develops a two-stage budgeting approach to estimate demand for fruits and vegetables using 1986-2010 quarterly CEX data. Precise stand errors are estimated by bootstrapping the entire two-stage estimation procedures. Results show that low-income households have larger total expenditure elasticities but smaller unconditional price elasticities than high-income households. Fruits and vegetables and all other goods are found to be net substitutes. Assuming that supplies for fruits and vegetable are perfectly elastic, a 10% price subsidy increases consumption of processed fruits and vegetables, fresh vegetables, and fresh fruits by 3.27% (10.68%), 3.29% (10.73%) and 3.50% (11.42%) for low-income (high-income) households, and only causes a small change in consumption of all other goods.

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Paper provided by Agricultural and Applied Economics Association in its series 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. with number 149248.

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Date of creation: 2013
Handle: RePEc:ags:aaea13:149248
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