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Why Governments Tax or Subsidize Trade: Evidence From Agriculture

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  • Gawande, Kishore
  • Hoekman, Bernard

Abstract

This paper empirically explores the political-economic determinants of why governments choose to tax or subsidize trade in agriculture. We use a new data set on nominal rates of assistance (NRA) across a number of commodities spanning the last four decades for 64 countries. NRAs measure the effect on domestic (relative to world) price of the scala of quantitative and price-based instruments used to regulate agriculture The data set admits consideration of effective taxes and subsidies on exports and imports. We find that both economic and political variables play important roles in determining the within-variation in the NRA data. Based on our results we offer a number of data-driven exploratory hypotheses that can inform future theoretical and empirical research on why governments choose to tax or subsidize agricultural products – an important policy question that is also one of the least understood by scholars.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7787.

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Date of creation: Apr 2010
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Handle: RePEc:cpr:ceprdp:7787

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Keywords: agriculture; political economy; trade policy;

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  1. World Bank, 2007. "World Development Indicators 2007," World Bank Publications, The World Bank, number 8150, July.
  2. Kym Anderson & Will Martin, 2009. "Distortions to Agricultural Incentives in Asia," World Bank Publications, The World Bank, number 2611, July.
  3. Anderson, Kym & Martin, Will & Valenzuela, Ernesto, 2006. "The Relative Importance of Global Agricultural Subsidies and Market Access," CEPR Discussion Papers 5569, C.E.P.R. Discussion Papers.
  4. Beck, T.H.L. & Clarke, G. & Groff, A. & Keefer , P. & Walsh, P., 2001. "New tools in comparative political economy: The database of political institutions," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125517, Tilburg University.
  5. Anderson, Kym, 1995. "Lobbying Incentives and the Pattern of Protection in Rich and Poor Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 43(2), pages 401-23, January.
  6. Dutt, Pushan & Mitra, Devashish, 2006. "Labor versus capital in trade-policy: The role of ideology and inequality," Journal of International Economics, Elsevier, vol. 69(2), pages 310-320, July.
  7. Anderson, Kym & Croser, Johanna L. & Sandri, Damiano & Valenzuela, Ernesto, 2009. "Agricultural Distortion Patterns Since the 1950s: What Needs Explaining?," Agricultural Distortions Working Paper 50305, World Bank.
  8. Anderson, Kym & Kurzweil, Marianne & Martin, Will & Sandri, Damiano & Valenzuela, Ernesto, 2008. "Measuring Distortions to Agricultural Incentives, Revisited," CEPR Discussion Papers 6924, C.E.P.R. Discussion Papers.
  9. Dutt, Pushan & Mitra, Devashish, 2002. "Endogenous trade policy through majority voting: an empirical investigation," Journal of International Economics, Elsevier, vol. 58(1), pages 107-133, October.
  10. Rodrik, Dani, 1995. "Political economy of trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 28, pages 1457-1494 Elsevier.
  11. Olper, Alessandro & Raimondi, Valentina, 2009. "Constitutional Rules and Agricultural Policy Outcomes," Agricultural Distortions Working Paper 50304, World Bank.
  12. Pushan Dutt & Devashish Mitra, 2002. "Political Ideology and Endogenous Trade Policy: An Empirical Investigation," NBER Working Papers 9239, National Bureau of Economic Research, Inc.
  13. De Gorter, Harry & Swinnen, Johan, 2002. "Political economy of agricultural policy," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 2, chapter 36, pages 1893-1943 Elsevier.
  14. Rodnik, Dani, 1992. "Conceptual issues in the design of trade policy for industrialization," World Development, Elsevier, vol. 20(3), pages 309-320, March.
  15. Hoekman, Bernanrd & Ng, Francis & Olarreaga, Marcelo, 2003. "Reducing agrcultural tariffs versus domestic support : what's more important for developing countries?," Policy Research Working Paper Series 2918, The World Bank.
  16. Anderson,Kym (ed.), 2010. "The Political Economy of Agricultural Price Distortions," Cambridge Books, Cambridge University Press, number 9780521763233.
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