Tax Policy and Food Security

Pawan Gopalakrishnan and Anuradha Saha

MPRA Paper from University Library of Munich, Germany

Abstract: We build a two sector (agriculture and manufacturing) heterogenous agent model to analyze the effects of a food subsidy program on output and prices. The government may finance this subsidy by levying a distortionary income tax or a tax on manufacturing consumption. We find that in the long run the program increases the food output but lowers the manufacturing output, in both methods of its financing. While the price of food crop relative to the price of manufacturing good falls with subsidies in the income tax regime, the effect is opposite in the consumption tax regime. We also find that the food subsidy program may have long-run welfare gains for the two agents, but only for a certain range of subsidies. However, our simulations suggest that there is no subsidies which benefit both agents at the same time. Further, financing this program using an indirect consumption tax is a Pareto improvement over the direct income tax regime.

Keywords: Endogenous Growth; Fiscal Policy; Food Security; Welfare (search for similar items in EconPapers)
JEL-codes: E2 E62 H29 O1 O11 (search for similar items in EconPapers)
Date: 2015-02-10
New Economics Papers: this item is included in nep-agr, nep-mac and nep-pbe
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Related works:
Journal Article: TAX POLICY AND FOOD SECURITY: A DYNAMIC ANALYSIS (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:62089

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