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The Efficiency of Direct Payments versus Tax Reductions under Uncertainty

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  • Goetz, Renan U.
  • Keusch, Alois
  • Ribas-Tur, Joan

Abstract

This paper analyzes the optimal behavior of farmers in the presence of direct payments and uncertainty. In an empirical analysis for Switzerland, it confirms previously obtained theoretical results and determines the magnitude of the theoretical predicted effects. The results show that direct payments increase agricultural production between 3.7% to 4.8%. Alternatively to direct payments, the production effect of tax reductions is evaluated in order to determine its magnitude. The empirical analysis corroborates the theoretical results of the literature and demonstrates that tax reductions are also distorting, but to a substantially lesser degree if losses are not offset. However, tax reductions, independently whether losses are offset or not, lead to higher government spending than pure direct payments.

Suggested Citation

  • Goetz, Renan U. & Keusch, Alois & Ribas-Tur, Joan, 2003. "The Efficiency of Direct Payments versus Tax Reductions under Uncertainty," Working Papers of the Department of Economics, University of Girona 8, Department of Economics, University of Girona.
    • Handle: RePEc:udg:wpeudg:008
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    References listed on IDEAS

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    Cited by:

    1. Kim, Tae-Hun, 2008. "Effect of Decoupled Payments on U.S. Agricultural Production," Journal of Rural Development/Nongchon-Gyeongje, Korea Rural Economic Institute, vol. 31(5), pages 1-20, November.
    2. Bokusheva, Raushan & Kumbhakar, Subal C. & Lehmann, Bernard, 2010. "The effect of environmental cross compliance regulations on Swiss farm productivity," 84th Annual Conference, March 29-31, 2010, Edinburgh, Scotland 91828, Agricultural Economics Society.
    3. Finger, Robert, 2011. "Reductions of Agricultural Nitrogen Use Under Consideration of Production and Price Risks," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114356, European Association of Agricultural Economists.
    4. Bokusheva, Raushan & Kumbhakar, Subal C. & Lehmann, Bernard, 2012. "The effect of environmental regulations on Swiss farm productivity," International Journal of Production Economics, Elsevier, vol. 136(1), pages 93-101.

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    More about this item

    Keywords

    Uncertainty; Direct Payments; Income Tax; Reductions; Agriculture;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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