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Welfare Changes from the U.S. Ethanol Tax Credit: The Role of Uncertainty and Interlinked Commodity Markets

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  • Mindy L. Baker

Abstract

A model of the corn, soybean, and wheat markets calculates welfare effects of the U.S. ethanol tax credit. Crop yields are uncertain, and demand consists of feed, food, energy, and exports. Modeling uncertainty in crop yields allows the valuation of deficiency payments as options. Disaggregating demand records who benefits from the tax credit and by how much; incorporating linked crop markets captures indirect effects important for determining the transfer from consumers to producers. There is $600 million in net welfare loss, increased taxpayer liability, and a large transfer from consumers to farmers. A brief comparison of recent literature is included.

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Bibliographic Info

Paper provided by Center for Agricultural and Rural Development (CARD) at Iowa State University in its series Center for Agricultural and Rural Development (CARD) Publications with number 08-wp483.

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Date of creation: Dec 2008
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Handle: RePEc:ias:cpaper:08-wp483

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Keywords: biofuel; commodity; ethanol; tax credit; uncertainty; welfare.;

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  1. Harry de Gorter & David R. Just, 2007. "The Welfare Economics of a Biofuel Tax Credit and the Interaction Effects with Price Contingent Farm Subsidies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 91(2), pages 477-488.
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Cited by:
  1. Bullock, David S. & Couleau, Anabelle, 2012. "The U.S. Ethanol and Commodity Policy Labyrinth: Looking into Welfare Space to Analyze Policies that Combine Multiple Instruments," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil, International Association of Agricultural Economists 126901, International Association of Agricultural Economists.

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