OPTIMAL AGRICULTURAL POLICY: SMALL GAINS?

Kai Ding and Filippo Rebessi

Economic Inquiry, 2020, vol. 58, issue 4, 1907-1928

Abstract: Agricultural subsidies distort the allocation of workers across sectors, and may keep too many workers in agriculture. We use a general equilibrium model with endogenous sector selection calibrated to the U.S. economy to assess the efficiency loss and redistribution effect of the current transfer system. Eliminating current subsidies has two main effects: (1) small efficiency gains (around 4% of agricultural output) and (2) a corresponding rise in the price of agricultural goods. We find high‐productivity farmers to be the main beneficiaries of the existing policies, although some of the transfers generate a redistribution effect toward low‐productivity agents, which extends beyond the agricultural sector. (JEL H21, H25, H30, J24, J31, J43)

Date: 2020
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