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Income Redistribution Through Commodity Programmes and the Marginal Welfare Cost of Taxation

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  • baharumshah, ahmad

    (labatan Ekonomi Fakulti Ekonomi & Pengurusan Universiti Pertanian Malaysia 43400 UPM Serdang, Selangor D.E.)

Abstract

Most economic welfare analysis 0f farm programmes are usually computed based on the assumption that the social opportunity cost of a dollar of public spending is equivalent to a dollar of private income. The approach simplifies the analysis but ignores the welfare cost of distortion caused by collection of taxes to finance public expenditure. This study shows that when the marginal opportunity cost of a dollar of goverment spending is greater than one dollar then the net social cost of farm programmes involving public expenditure is greater than typically estimaled. Four policy options were considered in this paper and we showed that output subsidy is less pareto superior than tariff as commonly thought. Further, our analysis shows the pareto superior program is the one that combines production control couple with target prices and output subsidy.

Suggested Citation

  • baharumshah, ahmad, 1992. "Income Redistribution Through Commodity Programmes and the Marginal Welfare Cost of Taxation," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 25(June), pages 47-61.
    • Handle: RePEc:ukm:jlekon:v:25:y:1992:i:june:p:47-61
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    References listed on IDEAS

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    1. Julian M. Alston & Brian H. Hurd, 1990. "Some Neglected Social Costs of Government Spending in Farm Programs," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 72(1), pages 149-156.
    2. Browning, Edgar K, 1987. "On the Marginal Welfare Cost of Taxation," American Economic Review, American Economic Association, vol. 77(1), pages 11-23, March.
    3. Bruce Gardner, 1983. "Efficient Redistribution through Commodity Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 65(2), pages 225-234.
    4. repec:bla:ecorec:v:58:y:1982:i:162:p:253-62 is not listed on IDEAS
    5. Christopher C. Findlay & Robert L. Jones, 1982. "The Marginal Cost of Australian Income Taxation," The Economic Record, The Economic Society of Australia, vol. 58(3), pages 253-262, September.
    6. Gwo-Jiun M. Leu & Andrew Schmitz & Ronald D. Knutson, 1987. "Gains and Losses of Sugar Program Policy Options," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 69(3), pages 591-602.
    7. Ballard, Charles L & Shoven, John B & Whalley, John, 1985. "General Equilibrium Computations of the Marginal Welfare Costs of Taxes in the United States," American Economic Review, American Economic Association, vol. 75(1), pages 128-138, March.
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