IDEAS home Printed from https://ideas.repec.org/p/red/sed013/1056.html
   My bibliography  Save this paper

Fiscal Policy and inequality in economies with large, unproductive, agricultural sectors

Author

Listed:
  • Adrian Peralta-Alva

    (International Monetary Fund and Federal Reserve Bank of St. Louis)

Abstract

Poor countries devote the largest fraction of their labor force to agriculture, which is also their least productive sector. This turns out to be key for understanding cross-country disparities in per capita incomes. A large and active literature aims at finding the causes behind these facts. Most models employed highlight that a minimum (subsistence) level of agricultural production is required before the economy can produce anything else. Hence, “too many†resources may be devoted to an unproductive sector. We evaluate the interactions between fiscal policy (in particular infrastructure investment), income inequality, and economic performance in such type of frameworks. We uncover and study the following policy tradeoff: infrastructure investment expansions may have the largest impact on GDP when targeted to the highest productivity sector, but they may also increase income inequality, and even depress the income of the poorest. The reason is that such expansions require increased production of non agricultural goods. General equilibrium forces may lower the price and ultimately the income of agriculture to accommodate the required shift of resources. Labor reallocation frictions prevent equalization of wages across sectors. Further, wage and relative price movements may be large, due to the highly inelastic demand for agriculture when output is close to subsistence levels.

Suggested Citation

  • Adrian Peralta-Alva, 2013. "Fiscal Policy and inequality in economies with large, unproductive, agricultural sectors," 2013 Meeting Papers 1056, Society for Economic Dynamics.
  • Handle: RePEc:red:sed013:1056
    as

    Download full text from publisher

    File URL: https://economicdynamics.org/meetpapers/2013/paper_1056.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Rafael A Portillo & Andrew Berg & Jan Gottschalk & Luis-Felipe Zanna, 2010. "The Macroeconomics of Medium-Term Aid Scaling-Up Scenarios," IMF Working Papers 10/160, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed013:1056. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann). General contact details of provider: http://edirc.repec.org/data/sedddea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.