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Tax Policy and Food Security

Author

Listed:
  • 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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    File URL: https://mpra.ub.uni-muenchen.de/62089/1/MPRA_paper_62089.pdf
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    References listed on IDEAS

    as
    1. Bliss, Christopher & Stern, Nicholas, 1978. "Productivity, wages and nutrition : Part I: the theory," Journal of Development Economics, Elsevier, vol. 5(4), pages 331-362, December.
    2. Bliss, Christopher & Stern, Nicholas, 1978. "Productivity, wages and nutrition : Part II: Some observations," Journal of Development Economics, Elsevier, vol. 5(4), pages 363-398, December.
    3. Daron Acemoglu & Veronica Guerrieri, 2008. "Capital Deepening and Nonbalanced Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 116(3), pages 467-498, June.
    4. Verma, Rubina, 2012. "Can total factor productivity explain value added growth in services?," Journal of Development Economics, Elsevier, vol. 99(1), pages 163-177.
    5. Dasgupta, Partha & Ray, Debraj, 1986. "Inequality as a Determinant of Malnutrition and Unemployment: Theory," Economic Journal, Royal Economic Society, vol. 96(384), pages 1011-1034, December.
    6. Gordon, Roger & Li, Wei, 2009. "Tax structures in developing countries: Many puzzles and a possible explanation," Journal of Public Economics, Elsevier, vol. 93(7-8), pages 855-866, August.
    7. Vasco Gabriel & Paul Levine & Joseph Pearlman & Bo Yang, 2010. "An Estimated DSGE Model of the Indian Economy," School of Economics Discussion Papers 1210, School of Economics, University of Surrey.
    8. Dasgupta, Partha, 1997. "Nutritional status, the capacity for work, and poverty traps," Journal of Econometrics, Elsevier, vol. 77(1), pages 5-37, March.
    9. Antoci, Angelo & Russu, Paolo & Ticci, Elisa, 2008. "Structural change, economic growth and environmental dynamics with heterogeneous agents," MPRA Paper 13668, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Endogenous Growth; Fiscal Policy; Food Security; Welfare;

    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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