Efficiency of decoupled farm programs under distortionary taxation

Paolo Sckokai, Giancarlo Moschini

Research output: Contribution to journalArticlepeer-review

23 Citations (Scopus)

Abstract

When lump-sum taxation is not feasible, decoupled transfers to farmers (which require raising government revenue) will entail welfare loss somewhere in the economy. Assuming the government’s objective is to assure a given welfare level for farmers, we show that when decoupling is possible, free trade is always superior to some tariff protection for a small country, even under distortionary taxation. As expected, for a large country there is scope for an optimal tariff policy that improves the terms of trade. However, we show a separation between the exercise of market power through an optimal tariff, and the interaction of distortionary taxation with transfers to farmers. We conclude that decoupling is usually desirable, even in a distorted economy in which lump-sum taxation is not feasible. © 1994 American Agricultural Economics Association.
Original languageEnglish
Pages (from-to)362-370
Number of pages9
JournalAmerican Journal of Agricultural Economics
Volume76
DOIs
Publication statusPublished - 1994

Keywords

  • Agricultural Policy
  • Decoupling
  • Farm Subsidies
  • Optimal Commodity Taxation
  • Optimal Tariff
  • Trade Policy

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