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Varible Rate Subsidies : The Ineficiency of In-Kind Transfers Revisited

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  • Michael J. Stutzer

    (Federal Reserve Bank of Minneapolis)

Abstract

The inefficiency of fixed rate consumer price subsidies, relative to cash transfers, is one of the best-known propositions in welfare economics. It has also been used to show that matching grants are a more inefficient intergovernmental aid than are lump sum grants. Furthermore, the cost of fixed rate subsidies cannot be controlled without providing a "cap" beyond which amount no subsidy is received. This paper reports, both qualitatively and quantitatively, that a broad class of variable rate price subsidies also dominates fixed rate subsidies on both counts. The relative inefficiency of matching grants compared to the variable rate Federal General Revenue Sharing program is estimated.

Suggested Citation

  • Michael J. Stutzer, 1984. "Varible Rate Subsidies : The Ineficiency of In-Kind Transfers Revisited," Public Finance Review, , vol. 12(1), pages 77-95, January.
    • Handle: RePEc:sae:pubfin:v:12:y:1984:i:1:p:77-95
    DOI: 10.1177/109114218401200104
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    1. Rosen, Harvey S, 1978. "The Measurement of Excess Burden with Explicit Utility Functions," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages 121-135, April.
    2. Stutzer, Michael J., 1982. "Another note on deadweight loss," Journal of Public Economics, Elsevier, vol. 18(2), pages 277-284, July.
    3. Waldauer, Charles, 1973. "Grant Structures and Their Effects on Aided Government Expenditures: An Indifference Curve Analysis," Public Finance = Finances publiques, , vol. 28(2), pages 212-226.
    4. Kay, J. A., 1980. "The deadweight loss from a tax system," Journal of Public Economics, Elsevier, vol. 13(1), pages 111-119, February.
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