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Efficient income redistribution for a small country using optimal combined instruments

  • Salhofer, K.

In this paper I improve Gardner's surplus transformation curve framework by assuming that governments are able to vary many policy instruments simultaneously instead of only one. I use my framework to find the combination of the currently used instruments which provides the most efficient income redistribution for the Austrian bread grains market. Comparing the most efficient policy with the actual policy reveals that 464 X 106 Austrian shillings were wasted. I theoretically compare for a small country the transfer efficiency of every possible pair of the four major agricultural policy instruments: floor price, (production) quota, co-responsibility levy, and deficiency payments. Without considering the marginal cost of public funds (MCF), deficiency payments cum quota (equal to a fully decoupled direct income support) is the most efficient policy, succeeded by floor price cum quota, and floor price cum deficiency payments. If the MCF is taken into account, the ranking crucially depends on the market parameters, the transfer level, and the value of the MCF. For the Austrian bread grains market, I empirically demonstrate that given the present support level, a fully decoupled direct income support redistributes income most efficiently as long as the MCF is lower than 1.17. Beyond this value a floor price cum quota policy becomes more efficient. A floor price cum deficiency payments policy is never superior to the floor price cum quota.

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Article provided by Blackwell in its journal Agricultural Economics.

Volume (Year): 13 (1996)
Issue (Month): 3 (February)
Pages: 191-199

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Handle: RePEc:eee:agecon:v:13:y:1996:i:3:p:191-199
Contact details of provider: Web page: http://www.blackwell-synergy.com/loi/agec

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  1. Bullock, David S, 1995. "Are Government Transfers Efficient? An Alternative Test of the Efficient Redistribution Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1236-74, December.
  2. von Cramon-Taubadel, Stephan, 1992. "A critical assessment of the political preference function approach in agricultural economics," Agricultural Economics, Blackwell, vol. 7(3-4), pages 371-394, October.
  3. Fullerton, Don, 1991. "Reconciling Recent Estimates of the Marginal Welfare Cost of Taxation," American Economic Review, American Economic Association, vol. 81(1), pages 302-08, March.
  4. Ballard, Charles L., 1990. "Marginal welfare cost calculations : Differential analysis vs. balanced-budget analysis," Journal of Public Economics, Elsevier, vol. 41(2), pages 263-276, March.
  5. Bullock, David S. & Jeong, Kyeong-Soo, 1994. "A critical assessment of the political preference function approach in agricultural economics," Agricultural Economics, Blackwell, vol. 10(2), pages 201-206, April.
  6. Charles L. Ballard & Don Fullerton, 1990. "Distortionary Taxes and the Provision of Public Goods," NBER Working Papers 3506, National Bureau of Economic Research, Inc.
  7. Bullock, David S. & Jeong, Kyeong-Soo, 1994. "Comment: A critical assessment of the political preference function approach in agricultural economics," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 10(2), April.
  8. Cramon-Taubadel, Stephan von, 1992. "A critical assessment of the political preference function approach in agricultural economics," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 7(3-4), October.
  9. Munk, K J, 1989. "Price Support to the EC Agricultural Sector: An Optimal Policy?," Oxford Review of Economic Policy, Oxford University Press, vol. 5(2), pages 76-89, Summer.
  10. Kola, Jukka, 1993. "Efficiency of Supply Control Programmes in Income Redistribution," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 20(2), pages 183-98.
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