# **1 Introduction**

As the second-largest means-tested aid program in the United States, the Supplemental Nutritional Assistance Program (SNAP) is a central element of the US safety net, providing about $ 70 billion in electronic benefits for food to more than 40 million Americans annually.<sup>1</sup> Although much attention has focused on the impact of SNAP on participating households, less is known about the response of retailers from the supply side.<sup>2</sup> Quantifying how producers respond to changes in SNAP, in particular by changing prices, is essential to understanding the welfare consequences of transfer programs. Price effects could attenuate the real spending power of government transfer payments and distort the redistributions such transfer programs intend to achieve. These effects are an empirical question.

We present new evidence on this question by estimating the impact of SNAP benefit changes on retail prices, sales, and household consumption, leveraging national retail and consumer scanner data between 2006 and 2015. To understand economic incidence, we develop and calibrate a partial-equilibrium framework. The mechanisms examined may help better understand implications of other social insurance programs such as universal basic income to the extent that electronic benefits for food are comparable, which we examine. Two main challenges arise when estimating the causal impact of SNAP. First, endogenous local economic conditions affect program participation, as eligibility for the program is determined by household economic characteristics. Second, because SNAP is a federal program, key parameters determining eligibility and benefits per recipient have been thought to leave little room for panel variation.

In this paper, we first formally document the benefit formula by analyzing computer algorithms used by the federal government to audit state-level-benefit disbursements, en route to introducing our identification strategy.<sup>3</sup> We investigate the factors that impacted the scale of the program during the Great Recession and its aftermath. We find that the program expanded by 140% between 2007 and 2014 not only because of the endogenous economic downturn, but also because of changes induced by the 2008 Farm Bill and the 2009 American Recovery and Reinvestment Act (ARRA). We report rich variation that resulted both from (1) the interaction of heterogeneous recipient profiles across states with

> 1The largest means-tested aid program in the US is Medicaid. SNAP was formerly known as the Food Stamp Program. In 2013, Americans spent $ 425 billion buying food for consumption at home across food stores, whereas SNAP spent $ 76 billion, or 18% of the US total (USDA, 2016, 2017). Appendix Figure O1 shows that SNAP benefits account varied between 8% and 18% of US food-at-home sales in food stores between 2006 and 2015. Since not all food at home is sold in stores classified as food stores, the actual shares may be smaller.

> 2Over 280,000 authorized retailers sell food to SNAP recipients.

> 3We are able to do so thanks to the Food and Nutrition Service (FNS) and Mathematica Policy Research teams, the owners of the codes, who have allowed us to analyze their audit codes (see Appendix B).

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