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Effects of the rural credit subsidy on economic growth and welfare of Brazilian regions

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  • Cardoso, Debora Freire
  • Teixeira, Erly Cardoso
  • Gurgel, Angelo Costa
  • Castro, Eduardo Rodrigues de

Abstract

The objective of this paper is to evaluate the impact of government spending with the Interest Rates Equalization (IRE) policy on the economic growth of Brazilian regions. Additionally, it aims to measure the opportunity cost of the subsidy in relation to an alternative application in the transportation sector. The model, database, and software from the General Equilibrium Analysis Project of the Brazilian Economy (PAEG) are applied to the simulations. The result shows that the IRE policy provides economic growth in the Midwestern, Northeastern and Southern regions above the cost of the policy. Besides, in the Northern and Southeastern regions, there is a decrease in the GDP. For Brazil, the policy is cost-effective and offers a 34% rate of return. Furthermore, all regions benefit in terms of welfare. For the country, in terms of GDP or welfare, spending on the IRE has negative alternative rate of return when applied to the transportation sector. The IRE policy is efficient and contributes to reduce regional disparities.

Suggested Citation

  • Cardoso, Debora Freire & Teixeira, Erly Cardoso & Gurgel, Angelo Costa & Castro, Eduardo Rodrigues de, 2011. "Effects of the rural credit subsidy on economic growth and welfare of Brazilian regions," Working Papers in Applied Economics 114464, Universidade Federal de Vicosa, Departamento de Economia Rural.
  • Handle: RePEc:ags:ufvdwp:114464
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    References listed on IDEAS

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    1. Henning Tarp Jensen & Sherman Robinson & Finn Tarp, 2010. "Measuring Agricultural Policy Bias: General Equilibrium Analysis of Fifteen Developing Countries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(4), pages 1136-1148.
    2. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70, pages 215-215.
    3. Hertel, Thomas, 1997. "Global Trade Analysis: Modeling and applications," GTAP Books, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, number 7685.
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    Keywords

    Subsidies; economic growth; Brazilian regions; PAEG; Agricultural and Food Policy;

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