Agricultural Policies in the Presence of Distorting Taxes

Ian Parry

RFF Working Paper Series from Resources for the Future

Abstract: This paper uses analytical and numerical general equilibrium models to assess the efficiency impacts of agricultural policies in a second-best setting with pre-existing distortionary taxes. We analyze production subsidies, production quotas, acreage controls, subsidies for acreage reductions and lump sum transfers to agricultural producers. We find that pre-existing taxes raise the cost of all these policies and by a substantial amount. Under our central estimates this increase in cost is typically at least 100-200 percent. Two effects underlie these results. First, raising the rates of distortionary taxes to finance subsidy policies leads to additional efficiency losses. Second, policies that raise (lower) the costs of producing agricultural output lead to a reduction (increase) in the economy-wide level of employment. This implies an efficiency loss (gain) in the labor market, which is distorted by taxes. The latter effect is not incorporated in earlier studies. Consequently, previous studies have significantly overstated the costs of production subsidies and understated the costs of production quotas, acreage controls and subsidies for acreage reductions.

Date: 1997-11-01
New Economics Papers: this item is included in nep-agr
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.rff.org/RFF/documents/RFF-DP-98-05.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.rff.org/RFF/documents/RFF-DP-98-05.pdf [301 Moved Permanently]--> https://www.rff.org/RFF/documents/RFF-DP-98-05.pdf)

Related works:
Journal Article: Agricultural Policies in the Presence of Distorting Taxes (1999)
Working Paper: Agricultural Policies in the Presence of Distorting Taxes (1997)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rff:dpaper:dp-98-05

Access Statistics for this paper

More papers in RFF Working Paper Series from Resources for the Future Contact information at EDIRC.
Bibliographic data for series maintained by Resources for the Future ().