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Taxation and Pricing of Agricultural and Industrial Goods

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  • Raaj Kumar Sah
  • Joseph E. Stiglitz

Abstract

This paper presents an analysis of price reform and of optimal pricing and taxation of agricultural and industrial goods in modern-day LDCs. Our analysis is based on a general equilibrium paradigm with a multitude of goods and income groups. It is consistent with several alternative institutional structures with in the agricultural and the industrial sectors, as well as with alternative hypotheses concerning unemployment and migration of labor across the two sectors.This approach differs substantially from the standard tax literature with regard to the structure of the economy and the set of admissible taxes.The rules of price reform which we derive are quite simple to implement, requiring only the knowledge of observable parameters such as price elasticities of demand and supply. The determination of optimal prices (and taxes) requires, in addition, the relative welfare weights on individuals' incomes and on investment. We show that it is desirable, ingeneral, to levy import and export taxes. Among new results are those presenting conditions under which all of the goods belonging to certain categories (such as all purchased agricultural inputs or all agricultural outputs which are not consumed) should be either taxed or stibsidized.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1338.

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Date of creation: Apr 1984
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Publication status: published as "The Taxation and Pricing of Agricultural and Industrial Goods in Developing Economies." From The Theory of Taxation for Developing Countries, edited by David Newbery and Nicholas Stern, pp. 426-461, Oxford: Oxford University Press, 1987.
Handle: RePEc:nbr:nberwo:1338

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  1. Mirrlees, James A, 1972. "On Producer Taxation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 39(1), pages 105-11, January.
  2. Dixit, Avinash, 1971. "Short-run Equilibrium and Shadow Prices in the Dual Economy," Oxford Economic Papers, Oxford University Press, vol. 23(3), pages 384-400, November.
  3. Feldstein, Martin S, 1977. "The Surprising Incidence of a Tax on Pure Rent: A New Answer to an Old Question," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(2), pages 349-60, April.
  4. Newbery, David, 1974. "The Robustness of Equilibrium Analysis in the Dual Economy," Oxford Economic Papers, Oxford University Press, vol. 26(1), pages 32-41, March.
  5. Feldstein, Martin S, 1972. "Distributional Equity and the Optimal Structure of Public Prices," American Economic Review, American Economic Association, American Economic Association, vol. 62(1), pages 32-36, March.
  6. Mirrless, J. A., 1975. "Optimal commodity taxation in a two-class economy," Journal of Public Economics, Elsevier, Elsevier, vol. 4(1), pages 27-33, February.
  7. Newbery, David M, 1989. "The Theory of Food Price Stabilisation," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 99(398), pages 1065-82, December.
  8. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, Elsevier, vol. 6(1-2), pages 55-75.
  9. Newbery, David M G, 1972. "Public Policy in the Dual Economy," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 82(326), pages 567-90, June.
  10. Dixit, Avinash K., 1969. "Marketable surplus and dual development," Journal of Economic Theory, Elsevier, Elsevier, vol. 1(2), pages 203-219, August.
  11. Dixit, Avinash & Stern, Nicholas, 1974. "Determinants of Shadow Prices in Open Dual Economies," Oxford Economic Papers, Oxford University Press, vol. 26(1), pages 42-53, March.
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Cited by:
  1. Joseph E. Stiglitz, 1985. "Economics of Information and the Theory of Economic Development," NBER Working Papers 1566, National Bureau of Economic Research, Inc.

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