Academic journal article Agricultural and Resource Economics Review

How Does the Supplemental Nutrition Assistance Program Affect the U.S. Economy?

Academic journal article Agricultural and Resource Economics Review

How Does the Supplemental Nutrition Assistance Program Affect the U.S. Economy?

Article excerpt

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The U.S. Supplemental Nutrition Assistance Program (SNAP) has grown rapidly in recent years in the wake of the recession that followed the rapid decline in real estate prices starting in 2007, along with policy changes that expanded access to the program. In 2012, expenditures reached $78 billion with the number of SNAP recipients at 47 million, up from 27 million in 2007 (Food and Nutrition Service (FNS) 2014). Concurrent with that growth was a rapid expansion in the body of literature examining the economics of the program. Nearly all of this research has focused on the microeconomics of SNAP, including its effects on the food security and health of participants (e.g., Ratcliffe, McKernan, and Zhang 2011, Castner and Henke 2011, Burgstahler, Gundersen, and Garasky 2012, Mabli et al. 2013). While this literature has shed much light on the functioning of the program, comparatively little is known about the effect of SNAP on the economy as a whole, which is the focus of the study at hand.

Studying the program from the perspective of aggregate economic outcomes can inform our understanding of the efficiency of resource allocation and the distributional effects of this program, including its effects on different households, sectors, and institutions within the economy.

A focus on economy-wide impacts requires analysis of the links between key components in the economy, including public financing, markets for goods, and factor markets. In terms of public financing, SNAP could affect the welfare of households that are not eligible for SNAP (in addition to those that are eligible and participate in the program) through its effect on taxes and disposable income. With respect to markets for goods, SNAP could indirectly affect economic sectors such as durable good manufacturing and medical services in addition to economic sectors that could be more directly affected by SNAP, such as food manufacturing and crop agriculture. By enabling purchases of food, the program potentially sends ripple effects through markets for other goods and services. Finally, factor markets are another link between SNAP and households, both eligible and ineligible. Through its effect on consumer spending, SNAP could influence the aggregate demand for labor and capital and, therefore, could affect the incomes of a wide range of households.

It is useful to classify goods and services into two broad groups, luxuries and staples. A good is a luxury if quantity consumed increases more than proportionately as income rises; it has a high income elasticity of demand. A good is a staple if demand for it increases proportionately less than income when there is a rise in income; it has a low income elasticity of demand.

As mentioned, one effect of SNAP is on households that are not eligible for SNAP benefits. For a household of three, this is roughly those with incomes of more than $25,000 per year (FNS 2014). Much of the funding for SNAP comes through taxation of higher-income, ineligible households. Their consumption patterns likely differ from those of low-income, SNAP-eligible households. If an extra dollar is received, a higher-income household may spend less of it on food at home, a staple, than would a low-income family since their needs are already mostly met. Thus, in the absence of SNAP, higher-income households could in theory have more after-tax income and would increase consumption of some goods and services more than proportionately. Offsetting this effect, however, is that without SNAP, current participants would have to cut back on nonfood expenditures as they struggle to pay for food (a staple) with what money they have. By supporting food expenses, SNAP frees up money for goods and services that might otherwise be unaffordable, including rent and utilities (Edin et al. 2013). For SNAP-eligible households, these nonfood expenses may need to be deferred or cut relative to food.

In summary, SNAP potentially influences spending patterns for a broad range of goods and services and, by extension, the economic sectors in which these goods and services are produced, along with associated factor markets. …

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