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Efficiency of Decoupled Farm Programs under Distortionary Taxation

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When lump-sum taxation is not feasible, decoupled transfers to farmers (which require raising government revenue) will entail welfare loss somewhere in the economy. Assuming the government's objective is to assure a given welfare level for farmers, we show that when decoupling is possible, free trade is always superior to some tariff protection for a small country, even under Distortionary taxation. As expected, for a large country there is scope for an optimal tariff policy that improves the terms of trade. However, we show a separation between the exercise of market power through an optimal tariff, and the interaction of Distortionary taxation with transfers to farmers. We conclude that decoupling is usually desirable, even in a distorted economy in which lump-sum taxation is not feasible.

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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 94-gatt5.

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Date of creation: Mar 1994
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Handle: RePEc:ias:cpaper:94-gatt5

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Cited by:
  1. Douarin, Elodie & Latruffe, Laure, 2009. "Will the EU Single Area Payment decrease farm efficiency in the New Member States?," 2009 Conference, August 16-22, 2009, Beijing, China, International Association of Agricultural Economists 51625, International Association of Agricultural Economists.
  2. Parry, Ian, 1997. "Agricultural Policies in the Presence of Distorting Taxes," Discussion Papers, Resources For the Future dp-98-05, Resources For the Future.
  3. 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).
  4. Rude, James, 2007. "Production Effects of the European Union’s Single Farm Payment," Working Papers 7335, Canadian Agricultural Trade Policy Research Network.
  5. Bullock, D. S. & Salhofer, K., 1998. "Measuring the social costs of suboptimal combinations of policy instruments: A general framework and an example," Agricultural Economics, Blackwell, Blackwell, vol. 18(3), pages 249-259, May.
  6. Bullock, D.S. & Salhofer, K., 1998. "Measuring the social costs of suboptimal combinations of policy instruments: A general framework and an example," Agricultural Economics: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 18(3), May.
  7. Pierre-Alain Jayet & Julien Labonne, 2005. "Impact d’une réforme de la Politique Agricole Commune par le découplage," Économie et Prévision, Programme National Persée, vol. 167(1), pages 101-116.
  8. Nancy H. Chau & Harry de Gorter, 2005. "Disentangling the Consequences of Direct Payment Schemes in Agriculture on Fixed Costs, Exit Decisions, and Output," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 87(5), pages 1174-1181.
  9. Alston, Julian M. & Smith, Vincent H. & Acquaye, Albert & Hosseini, Safdar, 1999. "Least-cost cheap-food policies: some implications of international food aid," Agricultural Economics: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 20(3), May.
  10. Bouamra, Zohra & Requillart, Vincent, 1998. "Agricultural Policy In A Vertical Structure Of Production With An Application To The Milk Industry," 1998 Annual meeting, August 2-5, Salt Lake City, UT 21010, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  11. Zhu, Xueqin & Demeter, Robert Milan & Oude Lansink, Alfons G.J.M., 2008. "Competitiveness of dairy farms in three countries: the role of CAP subsidies," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44143, European Association of Agricultural Economists.
  12. Chau, Nancy H. & de Gorter, Harry, 2000. "Disentangling The Production And Export Consequences Of Direct Farm Income Payments," 2000 Annual meeting, July 30-August 2, Tampa, FL 21854, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  13. Bouamra-Mechemache, Zohra & Chavas, Jean-Paul & Cox, Thomas L. & Requillart, Vincent, 2001. "Interregional Analysis Of The Impacts Of Eliminating European Union Milk Production Quotas," 2001 Annual meeting, August 5-8, Chicago, IL 20677, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  14. Bullock, David S. & Salhofer, Klaus, 2003. "Judging agricultural policies: a survey," Agricultural Economics: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 28(3), May.
  15. Baffes, John & De Gorter, Harry, 2005. "Disciplining agricultural support through decoupling," Policy Research Working Paper Series 3533, The World Bank.
  16. Bullock, David S. & Salhofer, Klaus, 2003. "Judging agricultural policies: a survey," Agricultural Economics, Blackwell, Blackwell, vol. 28(3), pages 225-243, May.

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