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Agricultural Policies in the Presence of Distorting Taxes

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  • Ian W.H. Parry

Abstract

This article analyzes how distortionary factor taxes affect the welfare impacts of production subsidies, production quotas, acreage controls, subsidies for acreage reductions, and cash transfers to farmers. Pre-existing taxes substantially raise the costs of all these policies. These additional costs reflect the welfare losses from financing certain policies by distortionary taxes. They also reflect interactions with factor markets caused by changes in the costs of producing agricultural output. Previous studies ignore the latter types of effect. Consequently they significantly overstate the costs of production subsidies and understate the costs of production quotas, acreage controls, and subsidies for acreage reductions. Copyright 1999, Oxford University Press.

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Bibliographic Info

Article provided by Agricultural and Applied Economics Association in its journal American Journal of Agricultural Economics.

Volume (Year): 81 (1999)
Issue (Month): 1 ()
Pages: 212-230

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Handle: RePEc:oup:ajagec:v:81:y:1999:i:1:p:212-230

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  1. Ian W. H. Parry & Roberton C. Williams III & Lawrence H. Goulder, 1997. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets," NBER Working Papers 5967, National Bureau of Economic Research, Inc.
  2. GianCarlo Moschini & Paolo Sckokai, 1994. "Efficiency of Decoupled Farm Programs under Distortionary Taxation," Food and Agricultural Policy Research Institute (FAPRI) Publications 94-gatt5, Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University.
  3. Angus Deaton, 1979. "Optimal Taxes and the Structure of Preferences," Working Papers 506, Princeton University, Department of Economics, Industrial Relations Section..
  4. Ian Parry, 1998. "A Second-Best Analysis of Environmental Subsidies," International Tax and Public Finance, Springer, vol. 5(2), pages 153-170, May.
  5. Browning, Edgar K, 1987. "On the Marginal Welfare Cost of Taxation," American Economic Review, American Economic Association, vol. 77(1), pages 11-23, March.
  6. Browning, Edgar K., 1997. "A neglected welfare cost of monopoly--and most other product market distortions," Journal of Public Economics, Elsevier, vol. 66(1), pages 127-144, October.
  7. Ballard, Charles L & Shoven, John B & Whalley, John, 1985. "General Equilibrium Computations of the Marginal Welfare Costs of Taxes in the United States," American Economic Review, American Economic Association, vol. 75(1), pages 128-38, March.
  8. A. Lans Bovenberg & Lawrence H. Goulder, 1995. "Costs of Environmentally Motivated Taxes in the Presence of Other Taxes:General Equilibrium Analyses," NBER Working Papers 5117, National Bureau of Economic Research, Inc.
  9. Sandmo, Agnar, 1976. "Optimal taxation : An introduction to the literature," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 37-54.
  10. Gardner, Bruce L, 1987. "Causes of U.S. Farm Commodity Programs," Journal of Political Economy, University of Chicago Press, vol. 95(2), pages 290-310, April.
  11. Parry, Ian W. H., 1997. "Environmental taxes and quotas in the presence of distorting taxes in factor markets," Resource and Energy Economics, Elsevier, vol. 19(3), pages 203-220, August.
  12. Bruce Gardner, 1981. "Efficient Redistribution in Agricultural Commodity Markets," University of Chicago - George G. Stigler Center for Study of Economy and State 20, Chicago - Center for Study of Economy and State.
  13. Lawrence Goulder, 1995. "Environmental taxation and the double dividend: A reader's guide," International Tax and Public Finance, Springer, vol. 2(2), pages 157-183, August.
  14. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
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Cited by:
  1. West, Sarah E. & Williams III, Roberton C., 2007. "Optimal taxation and cross-price effects on labor supply: Estimates of the optimal gas tax," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 593-617, April.
  2. Sarah E. West & Roberton C. Williams, 2004. "Empirical Estimates for Environmental Policy Making in a Second-Best Setting," NBER Working Papers 10330, National Bureau of Economic Research, Inc.
  3. Aldanondo, Ana Maria & Puertolas, Javier, 2002. "International Quota Transfer and Intermediate Goods," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24851, European Association of Agricultural Economists.
  4. de Gorter, Harry, 2008. "Explaining Inefficient Policy Instruments," Agricultural Distortions Working Paper 48638, World Bank.
  5. Baffes, John & De Gorter, Harry, 2005. "Disciplining agricultural support through decoupling," Policy Research Working Paper Series 3533, The World Bank.
  6. Brian Murray & Andrew Keeler & Walter Thurman, 2005. "Tax Interaction Effects, Environmental Regulation, and “Rule of Thumb” Adjustments to Social Cost," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 30(1), pages 73-92, January.

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