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Allocation Effects of Policy Reform: A Micro-Simulation of Macro-Model Results for the United States

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Author Info

  • Hopkins, Jeffrey W.
  • Hanson, Kenneth
  • Somwaru, Agapi
  • Burfisher, Mary E.

Abstract

By changing marginal prices and therefore production incentives, removal of government payments will result in a re-allocation of factors of production as farm households pursue alternative economic opportunities. At the economy-wide level these impacts are small, but closer inspection reveals that some household-level impacts will be larger and other households will be affected little if at all. The underlying heterogeneity of the agricultural sector results in variable adjustment along two dimensions. First, survey data show that payments are not evenly distributed so their removal does not have a uniform impact across the sector. Second, even if payments were evenly distributed, factor endowments are not, so that ability to enter into alternative enterprises and employment opportunities varies as well. Using micro-data from a national survey of farm households, we simulate the effects predicted by a disaggregated CGE due to removal of government payments. By bringing to the forefront the distributional character of farm and nonfarm labor income, other factor income, and tax payments, our micro-simulation approach can be a valuable tool for understanding the relationship between policy incidence and response, an issue sure to arise in implementing policy reform.

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File URL: http://purl.umn.edu/15750
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Bibliographic Info

Paper provided by International Agricultural Policy Reform and Adjustment Project (IAPRAP) in its series Policy Reform and Adjustment Workshop, October 23-25, 2003, Imperial College London, Wye Campus with number 15750.

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Date of creation: 2003
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Handle: RePEc:ags:iapr03:15750

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Web page: http://agadjust.aers.psu.edu/

Related research

Keywords: income; labor; CGE; micro-simulation; Agricultural and Food Policy;

References

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  1. Orden, David & Paarlberg, Robert & Roe, Terry, 1999. "Policy Reform in American Agriculture," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226632643, March.
  2. Mishra, Ashok K. & El-Osta, Hisham S. & Morehart, Mitchell J. & Johnson, James D. & Hopkins, Jeffrey W., 2002. "Income, Wealth, And The Economic Well-Being Of Farm Households," Agricultural Economics Reports, United States Department of Agriculture, Economic Research Service 33967, United States Department of Agriculture, Economic Research Service.
  3. Beard, Nick & Swinbank, Alan, 2001. "Decoupled payments to facilitate CAP reform," Food Policy, Elsevier, Elsevier, vol. 26(2), pages 121-145, April.
  4. Hanson, Kenneth & Somwaru, Agapi, 2003. "Distributional Effects Of U.S. Farm Commodity Programs: Accounting For Farm And Non-Farm Households," 2003 Annual meeting, July 27-30, Montreal, Canada 21944, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
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Cited by:
  1. Andrew Feltenstein & Luciana Lopes & Janet Porras Mendoza & Sally Wallace, 2013. "“The Impact of Micro-simulation and CGE modeling on Tax Reform and Tax Advice in Developing Countries”: A Survey of Alternative Approaches and an Application to Pakistan," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper1309, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

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