How do government transfer payments affect retail prices and welfare? Evidence from SNAP

This paper studies the effect of the Supplemental Nutrition Assistance Program (SNAP) on retail prices in the United States. State-level program adjustments motivate the identification strategy. A 1 percent increase in benefits per population raises grocery prices by a persistent 0. 08 percent. A calibrated partial-equilibrium model implies a marginal benefit dollar raises a recipient’s consumer surplus from groceries by 0. 7, producer surplus by 0. 5, and lowers each non-SNAP consumer’s surplus by 0. 05, because of a large marginal propensity to consume food out of SNAP, low elasticities of demand, and moderate market power. To guarantee the real intended spending power on food, benefits should be increased by 7 percent.