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Tax Policy and Food Security

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  • Gopalakrishnan, Pawan
  • Saha, Anuradha

Abstract

We build a two sector (agriculture and manufacturing) heterogenous agent model to analyze the effects of a food subsidy program on output and prices. The government may finance this subsidy by levying a distortionary income tax or a tax on manufacturing consumption. We find that in the long run the program increases the food output but lowers the manufacturing output, in both methods of its financing. While the price of food crop relative to the price of manufacturing good falls with subsidies in the income tax regime, the effect is opposite in the consumption tax regime. We also find that the food subsidy program may have long-run welfare gains for the two agents, but only for a certain range of subsidies. However, our simulations suggest that there is no subsidies which benefit both agents at the same time. Further, financing this program using an indirect consumption tax is a Pareto improvement over the direct income tax regime.

Suggested Citation

  • Gopalakrishnan, Pawan & Saha, Anuradha, 2015. "Tax Policy and Food Security," MPRA Paper 62089, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:62089
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    References listed on IDEAS

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    More about this item

    Keywords

    Endogenous Growth; Fiscal Policy; Food Security; Welfare;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H29 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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