Distributive considerations of a targeted price control

Abstract

We review the literature on price controls and build a model that analyses shot-term dis- tortions on relative prices of product categories that are either directly or indirectly affected by

price controls. According to the model, their imposition on low-end basic necessities might seem a progressive policy inasmuch as it makes those goods increasingly affordable in an inflationary context. However, the model shows they might wind up being regressive in markets for goods not included in the price control policy, suggesting that, even in the short term, these kind of

policies might not fully serve a distributive goal. We then employ a rich database of supermar- ket products in order to test the model’s predictions with empirical data. Our estimations for

January 2020’s version of the Precios Cuidados price control in Argentina are found to be in line with the model’s predictions.