Reforming Food Subsidy Schemes: Estimating the Gains from Self-targeting in India

The paper uses the theoretical framework of the theory of tax reform to analyze whether a "small" change in an existing food subsidy program can be both welfare-improving and revenue-neutral. It shows how existing econometric methods can be adapted to estimate demand parameters even when household-level data exhibit little price variation because the government controls food prices. The methodology is used to estimate welfare changes from shifting a rupee of subsidy on existing commodities to coarse cereals in the Indian public distribution system. Copyright Blackwell Publishing Ltd 2004..