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The Efficiency of Direct Payments versus Tax Reductions under Uncertainty

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Author Info
Goetz, Renan U. ()
Keusch, Alois
Ribas-Tur, Joan

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Abstract

This paper analyzes the optimal behavior of farmers in the presence of direct payments and uncertainty. In an empirical analysis for Switzerland, it confirms previously obtained theoretical results and determines the magnitude of the theoretical predicted effects. The results show that direct payments increase agricultural production between 3.7% to 4.8%. Alternatively to direct payments, the production effect of tax reductions is evaluated in order to determine its magnitude. The empirical analysis corroborates the theoretical results of the literature and demonstrates that tax reductions are also distorting, but to a substantially lesser degree if losses are not offset. However, tax reductions, independently whether losses are offset or not, lead to higher government spending than pure direct payments.

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Paper provided by Department of Economics, University of Girona in its series Working Papers of the Department of Economics, University of Girona with number 8.

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Date of creation: Jun 2003
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Handle: RePEc:udg:wpeudg:008

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Related research
Keywords: Uncertainty; Direct Payments; Income Tax; Reductions; Agriculture;

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Find related papers by JEL classification:
D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Hennessy, David A., 1998. "The Production Effects of Agricultural Income Support Policies under Uncertainty," Staff General Research Papers 1207, Iowa State University, Department of Economics.
  2. Uri Regev & Nikolaus Gotsch & Peter Rieder, 1997. "Are Fungicides, Nitrogen And Plant Growth Regulators Risk-Reducing? Empirical Evidence From Swiss Wheat Production," Journal of Agricultural Economics, Blackwell Publishing, vol. 48(1-3), pages 167-178. [Downloadable!] (restricted)
  3. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March. [Downloadable!] (restricted)
  4. Binswanger, Hans P, 1981. "Attitudes toward Risk: Theoretical Implications of an Experiment in Rural India," Economic Journal, Royal Economic Society, vol. 91(364), pages 867-90, December. [Downloadable!] (restricted)
  5. Hans P. Binswanger, 1981. "Attitudes Toward Risk: Theoretical Implications of an Experiment in Rural India," Artefactual Field Experiments 0009, The Field Experiments Website. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kim, Tae-Hun, 2008. "Effect of Decoupled Payments on U.S. Agricultural Production," Journal of Rural Development/Nongchon-Gyeongje, Korea Rural Economic Institute, vol. 31(5), November. [Downloadable!]
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