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

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

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.

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File URL: http://purl.umn.edu/114464
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Paper provided by Universidade Federal de Vicosa, Departamento de Economia Rural in its series Working Papers in Applied Economics with number 114464.

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Date of creation: 2011
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Handle: RePEc:ags:ufvdwp:114464
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  1. Jensen, Henning Tarp & Sherman, Robinson & Tarp, Finn, 2008. "Measuring Agricultural Policy Bias: General Equilibrium Analysis of Fifteen Developing Countries," MPRA Paper 61489, University Library of Munich, Germany.
  2. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70, pages 215.
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