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Efficiency of Decoupled Farm Programs Under Distortionary Taxation

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  • Giancarlo Moschini
  • Paolo Sckokai

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.

Suggested Citation

  • Giancarlo Moschini & Paolo Sckokai, 1994. "Efficiency of Decoupled Farm Programs Under Distortionary Taxation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(3), pages 362-370.
    • Handle: RePEc:oup:ajagec:v:76:y:1994:i:3:p:362-370.
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    1. Hanson, Kenneth & Somwaru, Agapi, 2003. "Distributional Effects of U.S. Farm Commodity Programs: Accounting for Farm and Non-Farm Households," Conference papers 331120, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    2. Bullock, David S. & Salhofer, Klaus, 2003. "Judging agricultural policies: a survey," Agricultural Economics, Blackwell, vol. 28(3), pages 225-243, May.
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    4. Bouamra-Mechemache, Zohra & Chavas, Jean-Paul & Cox, Thomas L. & Requillart, Vincent, 2001. "Interregional Analysis Of The Impacts Of Eliminating European Union Milk Production Quotas," 2001 Annual meeting, August 5-8, Chicago, IL 20677, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Schmitz Andrew & Haynes Dwayne J. & Schmitz Troy G., 2013. "Benefit-cost analysis: government compensation vs. consumer tax model," Journal of Benefit-Cost Analysis, De Gruyter, vol. 4(3), pages 375-389, December.
    6. Alain Carpentier & Hervé Guyomard & Chantal Le Mouël, 1998. "Consistency between environmental and competitiveness objectives of agricultural policies: economics of price support, set-aside, direct payments and other Common Agricultural Policy instruments," Chapters, in: John M. Antle & Joseph N. Lekakis & George P. Zanias (ed.), Agriculture, Trade and the Environment, chapter 5, pages 89-111, Edward Elgar Publishing.
    7. Kwok, Yun-Kwong, 2004. "Global factor trade with differentiated factor prices and factor intensities," Conference papers 331173, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    8. Ian W.H. Parry, 1999. "Agricultural Policies in the Presence of Distorting Taxes," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(1), pages 212-230.
    9. Elodie Douarin & Laure Latruffe, 2011. "Potential impact of the EU Single Area Payment on farm restructuring and efficiency in Lithuania," Post-Communist Economies, Taylor & Francis Journals, vol. 23(1), pages 87-103.
    10. Julian M. Alston & Vincent H. Smith & Albert Acquaye & Safdar Hosseini, 1999. "Least‐cost cheap‐food policies: some implications of international food aid," Agricultural Economics, International Association of Agricultural Economists, vol. 20(3), pages 191-201, May.
    11. Julien Labonne & Pierre-Alain Jayet, 2005. "Impact d’une réforme de la Politique Agricole Commune par le découplage," Économie et Prévision, Programme National Persée, vol. 167(1), pages 101-116.
    12. Zhu, Xueqin & Demeter, Robert Milan & Oude Lansink, Alfons G.J.M., 2008. "Competitiveness of dairy farms in three countries: the role of CAP subsidies," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44143, European Association of Agricultural Economists.
    13. Nancy H. Chau & Harry de Gorter, 2005. "Disentangling the Consequences of Direct Payment Schemes in Agriculture on Fixed Costs, Exit Decisions, and Output," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(5), pages 1174-1181.
    14. Rude, James, 2007. "Production Effects of the European Union’s Single Farm Payment," Working Papers 7335, Canadian Agricultural Trade Policy Research Network.
    15. Zhu, Xueqin & Milán Demeter, Róbert, 2012. "Technical efficiency and productivity differentials of dairy farms in three EU countries: the role of CAP subsidies," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 13(1), pages 1-27.
    16. Bouamra, Zohra & Requillart, Vincent, 1998. "Agricultural Policy In A Vertical Structure Of Production With An Application To The Milk Industry," 1998 Annual meeting, August 2-5, Salt Lake City, UT 21010, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    17. Chau, Nancy H. & de Gorter, Harry, 2000. "Disentangling The Production And Export Consequences Of Direct Farm Income Payments," 2000 Annual meeting, July 30-August 2, Tampa, FL 21854, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    18. Marion Desquilbet & Hervé Guyomard, 1998. "Taxes and subsidies in vertically related markets," Post-Print hal-02283455, HAL.
    19. Bullock, David S. & Dadakas, Dimitrios & Katranidis, Stelios D., 2009. "Measuring the Effects of Technology Change in Multiple Markets : Application to the Greek Cotton Yarn Industry," MPRA Paper 67204, University Library of Munich, Germany, revised 2012.
    20. James Rude, 2008. "Production Effects of the European Union's Single Farm Payment," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 56(4), pages 457-471, December.
    21. David S. Bullock & Klaus Salhofer & Jukka Kola, 1999. "The Normative Analysis of Agricultural Policy: A General Framework and Review," Journal of Agricultural Economics, Wiley Blackwell, vol. 50(3), pages 512-535, September.
    22. Baffes, John & De Gorter, Harry, 2005. "Disciplining agricultural support through decoupling," Policy Research Working Paper Series 3533, The World Bank.
    23. Douarin, Elodie & Latruffe, Laure, 2009. "Will the EU Single Area Payment decrease farm efficiency in the New Member States?," 2009 Conference, August 16-22, 2009, Beijing, China 51625, International Association of Agricultural Economists.

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