Are Price Controls Necessarily Bad? The Case of Vietnam
AbstractMost economists’ instinctive reaction to price controls is that they are harmful. If enforced, they result in shortages and resource misallocation. With weak enforcement they often result in black markets, and high transaction costs. In this paper we assess the pros and cons of rice price controls in Vietnam given these instincts. We argue that these price controls fix producer prices and allow government marketing agencies to sell at higher prices and hence are, in part, a revenue raising device. As such they may be part of an efficient tax mix, particularly so since agricultural incomes and production go untaxed under the formal tax system. We also argue that such controls can act to dampen costly domestic adjustments in the face of volatile world prices. We develop a multi sector multi household general equilibrium model to numerically analyse the consequences of these price controls, and show that this system can be supported as welfare enhancing under conditions which currently prevail in the Vietnamese economy. The case against price controls may hold in other circumstances, but in this case the arguments seem to be more nuanced.
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Bibliographic InfoPaper provided by University of Western Ontario, Department of Economics in its series UWO Department of Economics Working Papers with number 20021.
Date of creation: Feb 2002
Date of revision:
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Postal: Department of Economics, Reference Centre, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2
Phone: 519-661-2111 Ext.85244
Web page: http://economics.uwo.ca/research/research_papers/department_working_papers.html
Price controls; General Equilibrium; Tax-mix; Rice; Vietnam;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-12-02 (All new papers)
- NEP-COM-2002-12-02 (Industrial Competition)
- NEP-PKE-2002-12-02 (Post Keynesian Economics)
- NEP-TRA-2002-12-02 (Transition Economics)
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