Food subsidies in general equilibrium

The Atkinson-Stiglitz theorem on uniform consumption taxation breaks down if prices are endogenous. This paper investigates the implications for optimal food subsidies in China. To do so, we build a general equilibrium model where low-skilled workers have comparative advantage production of food. Food raise relative demand workers, which reduces skill premium and indirectly redistributes income from high-skilled to workers. We calibrate our match key moments Chinese economy, including sectoral spending patterns that obtain micro-level survey data. Our results suggest effects rationalize range 5%-12%.