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Front-Loading Agricultural Subsidies: Quantifying Public Savings

Author

Listed:
  • 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)

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.

Suggested Citation

  • Ding Kai & Rebessi Filippo, 2022. "Front-Loading Agricultural Subsidies: Quantifying Public Savings," The B.E. Journal of Macroeconomics, De Gruyter, vol. 22(2), pages 517-545, June.
    • Handle: RePEc:bpj:bejmac:v:22:y:2022:i:2:p:517-545:n:4
    DOI: 10.1515/bejm-2021-0065
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    More about this item

    Keywords

    agricultural subsidies; optimal transfers; front-loading; moral hazard;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J43 - Labor and Demographic Economics - - Particular Labor Markets - - - Agricultural Labor Markets

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