Front-Loading Agricultural Subsidies: Quantifying Public Savings

Ding Kai () and Rebessi Filippo ()
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Ding Kai: Department of Economics, CSU East Bay, VBT 429, 25800 Carlos Bee Blvd, Hayward, CA 94542, USA
Rebessi Filippo: Department of Economics, CSU East Bay, VBT 344, 25800 Carlos Bee Blvd, Hayward, CA 94542, USA

The B.E. Journal of Macroeconomics, 2022, vol. 22, issue 2, 517-545

Abstract: Reforms to agricultural policy have been stalling in OECD economies. In this paper, we quantify the potential for public savings from switching to an optimal transfer system in small open economies. Following the insights from the literature on repeated moral hazard, optimal subsidies are front-loaded, which provides stronger incentives for farmers to transition out of agriculture, compared to the existing policies. In our counterfactual experiments, we find government savings of 6% for Chile, 45% for Japan, 24% for Switzerland, and 51% for Turkey. In addition, optimal subsidies more than double the speed of the transition of employment out of agriculture.

Keywords: agricultural subsidies; optimal transfers; front-loading; moral hazard (search for similar items in EconPapers)
JEL-codes: H21 H25 J31 J43 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1515/bejm-2021-0065

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