Fit for (re)purpose ? A New Look at the Spatial Distribution of Agricultural Subsidies

Ebad Ebadi, Jason Daniel Russ and Esha Dilip Zaveri

No 10414, Policy Research Working Paper Series from The World Bank

Abstract: Agricultural subsidies make up a large share of public budgets, exceeding 40 percent of total agricultural production value in some countries. Subsidies are often important components of government strategies to raise agricultural productivity, support agricultural households, and promote fo od security. They do so by reducing production costs, promoting the use of inputs or modern farming techniques, encouraging the production of certain crops, and raising household incomes. Given the magnitude of these subsidies, their distributional implications and the externalities they impose on the environment are of significant consequence. This paper uses a new spatial analysis to explore the distributional implications of agricultural output subsidies across 16 countries/regions and the distributional and select environmental implications of input subsidies across 23 countries/regions. The findings show that, relative to the spatial distribution of income, both types of subsidy are distributionally mixed. Output subsidies are relatively progressive in 10 countries/regions and regressive in six, while input subsidies are relatively progressive in 11 countries/regions, regressive in nine, and neutral in three. The results also show that input subsidy schemes significantly increase fertilizer use, particularly in richer regions within countries, leading to soil saturation of nitrogen, an indicator of accelerated environmental degradation.

Date: 2023-04-19
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