The Efficiency of Direct Payments versus Tax Reductions under Uncertainty

Renan-Ulrich Goetz, Alois Keusch and Joan Ribas-Tur ()

Swiss Journal of Economics and Statistics (SJES), 2005, vol. 141, issue I, pages 115-127

Abstract: This paper analyzes the optimal behavior of farmers in the presence of direct payments and uncertainty. With the help of an empirical analysis for Switzerland, it confirms previously obtained theoretical results and determines the magnitude of the theoretically predicted effects. The results show that direct payments increase agricultural production by between 3.7% to 4.8%. At the same time, the effect of tax reductions on production is evaluated in order to determine its magnitude. The empirical analysis corroborates the theoretical results of the literature and demonstrates that tax reductions are also distorting, but to a substantially lesser degree if losses are not offset. However, tax reductions, independently of whether losses are offset or not, lead to higher government spending than pure direct payments.

Keywords: Uncertainty; Direct Payments; Income Tax Reductions; Agriculture (search for similar items in EconPapers)
JEL-codes: H21 H42 Q18 Q20 (search for similar items in EconPapers)
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Related works:
Working Paper: The Efficiency of Direct Payments versus Tax Reductions under Uncertainty (2003)
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