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Income Taxes and Price Variability in Storable Commodity Markets

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  • Kevin McNew
  • Bruce Gardner

Abstract

Progressive income taxes lead to distortions in economic decisions made across tax years. This is particularly important when income is volatile, as in the case of agriculture. Progressive taxes, therefore, can fundamentally change economic behavior over time. This study explores how progressive income taxes influence storage decisions and the markets for storable commodities. Under a progressive tax system, commodity storage tends to be lower in the aggregate and, as a consequence, price volatility increases. These distortions could be eliminated by introducing a flat-rate tax or by changing the tax reporting system for farmers. Copyright 1999, Oxford University Press.

Suggested Citation

  • Kevin McNew & Bruce Gardner, 1999. "Income Taxes and Price Variability in Storable Commodity Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(3), pages 544-552.
    • Handle: RePEc:oup:ajagec:v:81:y:1999:i:3:p:544-552
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    File URL: http://hdl.handle.net/10.2307/1244014
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    Cited by:

    1. Mallory, Mindy L. & Zhao, Wenjiao & Irwin, Scott H., 2012. "Farmer’s Income Shifting Option in Post-harvest Forward Contracting," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124692, Agricultural and Applied Economics Association.
    2. Lihong Lu McPhail & Bruce A. Babcock, 2008. "Ethanol, Mandates, and Drought: Insights from a Stochastic Equilibrium Model of the U.S. Corn Market," Center for Agricultural and Rural Development (CARD) Publications 08-wp464, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    3. McNew, Kevin & Smith, Vincent H., 2003. "Segregation of Grain Markets: Consequences for Price Behavior," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 28(1), pages 1-19, April.
    4. Joseph P. Janzen & Nicholas D. Paulson & Juo‐Han Tsay, 2024. "Commodity storage and the cost of capital: Evidence from Illinois grain farms," American Journal of Agricultural Economics, John Wiley & Sons, vol. 106(2), pages 526-546, March.
    5. Lihong Lu McPhail & Bruce A. Babcock, 2008. "Short-Run Price and Welfare Impacts of Federal Ethanol Policies," Center for Agricultural and Rural Development (CARD) Publications 08-wp468, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    6. Tomek, William G. & Peterson, Hikaru Hanawa, 2000. "Risk Management In Agricultural Markets: A Survey," 2000 Producer Marketing and Risk Management Conference, January 13-14, Orlando, FL 19580, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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