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Using a Canadian-American Natural Experiment to Study Relative Efficiencies of Social Welfare Payment Systems

  • Tanguay, Georges
  • Hunt, Gary
  • Marceau, Nicolas

We study whether social welfare recipients may end up paying more for their grocery if social welfare payments are more concentrated over time. We first present a theoretical model showing that lower incomes in general and a lower lower bound of the income distribution lead to less mobility for poorer consumers. This causes local stores to have more market power and increase their prices when the incomes of poorer people go down and/or when the number of poorer people goes up. Secondly, we verify these theoretical findings by using a natural experiment to study links between food prices and the more restrictive timing of social welfare payments in Montreal, Canada compared to the timing in Bangor, Maine. We find some statistically significant evidence of : i) a negative effect on prices in the week of social welfare check issue ; ii) increasing prices over a month. We also find that some socio-economic factors such as a higher percentage of single-parent families in one area may increase prices charged by grocery stores in that area.

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Paper provided by CIRPEE in its series Cahiers de recherche with number 0205.

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Date of creation: 2002
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Handle: RePEc:lvl:lacicr:0205
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  1. Alcaly, Roger E & Klevorick, Alvin K, 1971. "Food Prices in Relation to Income Levels in New York City," The Journal of Business, University of Chicago Press, vol. 44(4), pages 380-97, October.
  2. Edward L. Glaeser, 1996. "Should Transfer Payments Be Indexed to Local Price Levels?," NBER Working Papers 5598, National Bureau of Economic Research, Inc.
  3. MacDonald, James M. & Nelson, Paul Jr., 1991. "Do the poor still pay more? Food price variations in large metropolitan areas," Journal of Urban Economics, Elsevier, vol. 30(3), pages 344-359, November.
  4. Glazer, Amihai, 1981. "Advertising, Information, and Prices-A Case Study," Economic Inquiry, Western Economic Association International, vol. 19(4), pages 661-71, October.
  5. Parke E. Wilde & Christine K. Ranney, 2000. "The Monthly Food Stamp Cycle: Shooping Frequency and Food Intake Decisions in an Endogenous Switching Regression Framework," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(1), pages 200-213.
  6. Kunreuther, Howard, 1973. "Why the Poor May Pay More for Food: Theoretical and Empirical Evidence," The Journal of Business, University of Chicago Press, vol. 46(3), pages 368-83, July.
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