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The Efficiency of Direct Payments versus Tax Reductions under Uncertainty

Author

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  • Renan-Ulrich Goetz
  • Alois Keusch
  • Joan Ribas-Tur

Abstract

This paper analyzes the optimal behavior of farmers in the presence of direct payments and uncertainty. With the help of an empirical analysis for Switzerland, it confirms previously obtained theoretical results and determines the magnitude of the theoretically predicted effects. The results show that direct payments increase agricultural production by between 3.7% to 4.8%. At the same time, the effect of tax reductions on production 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 of whether losses are offset or not, lead to higher government spending than pure direct payments.

Suggested Citation

  • Renan-Ulrich Goetz & Alois Keusch & Joan Ribas-Tur, 2005. "The Efficiency of Direct Payments versus Tax Reductions under Uncertainty," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 141(I), pages 115-127, March.
  • Handle: RePEc:ses:arsjes:2005-i-4
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    References listed on IDEAS

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    1. Binswanger, Hans P, 1981. "Attitudes toward Risk: Theoretical Implications of an Experiment in Rural India," Economic Journal, Royal Economic Society, vol. 91(364), pages 867-890, December.
    2. 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.
    3. Goetz, R U, 1993. "Land Allocation under Consideration of Weather-Induced Crop Yield Variations: Decision Support by a Crop Yield Simulation and Risk Analysis Model (ERM)," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 20(2), pages 199-221.
    4. Jean-Paul Chavas & Matthew T. Holt, 1990. "Acreage Decisions Under Risk: The Case of Corn and Soybeans," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 72(3), pages 529-538.
    5. 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, Wiley Blackwell, vol. 48(1-3), pages 167-178.
    6. David A. Hennessy, 1998. "The Production Effects of Agricultural Income Support Policies under Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(1), pages 46-57.
    7. Rulon D. Pope & Richard E. Just, 1991. "On Testing the Structure of Risk Preferences in Agricultural Supply Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(3), pages 743-748.
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    Citations

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    Cited by:

    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.
    2. Bokusheva, Raushan & Kumbhakar, Subal C. & Lehmann, Bernard, 2010. "The effect of environmental cross compliance regulations on Swiss farm productivity," 84th Annual Conference, March 29-31, 2010, Edinburgh, Scotland 91828, Agricultural Economics Society.
    3. Finger, Robert, 2011. "Reductions of Agricultural Nitrogen Use Under Consideration of Production and Price Risks," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114356, European Association of Agricultural Economists.
    4. Bokusheva, Raushan & Kumbhakar, Subal C. & Lehmann, Bernard, 2012. "The effect of environmental regulations on Swiss farm productivity," International Journal of Production Economics, Elsevier, vol. 136(1), pages 93-101.

    More about this item

    Keywords

    Uncertainty; Direct Payments; Income Tax Reductions; Agriculture;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General

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