Food as a Necessity Good and Food Subsidies

Abstract

In this article, we extend a benchmark model to allow for a non-welfarist social welfare function (SWF) that treats food as a necessity good rather than a regular good, while preserving the assumption that individuals are rational. We show that the widespread use of food subsidies by governments worldwide for redistributive purposes can be justified by recognizing food as a necessity good in almost all societies. Specifically, (1) If food is treated as a regular good, food consumption should be neither taxed nor subsidized; (2) If food is treated as a necessity good, food consumption should be subsidized; and (3) The higher the “basic need” for food, the more heavily food consumption should be subsidized. We argue that our model provides a general theoretical framework that can also justify subsidies for other necessity goods, including essential utilities such as electricity and gas. Additionally, our model suggests that adopting a non-welfarist SWF would result in the breakdown of the Atkinson–Stiglitz theorem.