Give & Take? Child Benefits & Prices in Northern Canada

Cost of living is comparatively high in Northern Canada, which is a remote and sparsely populated region served by retail oligopolies (about 34 percent of communities feature a monopoly, while the rest feature a duopoly). Government transfers constitute a large share of household income in Northern communities, and child benefits are particularly important, with these programs having expanded in recent years (Universal Child Care Benefit in 2015 and Canada Child Benefit in 2016). We assess the extent to which increased child benefits are “captured†by higher prices. Using the Longitudinal Administrative Database and community-level data on prices and food shipments from Nutrition North Canada (2012-2019), we find that expanded child benefits are associated with higher prices (with an elasticity of 0.02), which for a family of four, offset about 24 percent of the increased purchasing power resulting from the expansion. Our results suggest that expanded child benefits increase food demand and that the main transmission mechanism leading to higher prices is markups, as our price effects hold conditional on the quantity of food shipped and are mostly driven by monopoly communities where about 61 percent of increased purchasing power is offset by higher food prices. Thus, Northern communities are not pure “pricetakers†and policies that increase cash assistance should consider the implications for local prices.