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.
Moschini, G., Sckokai, P., Efficiency of decoupled farm programs under distortionary taxation, <<AMERICAN JOURNAL OF AGRICULTURAL ECONOMICS>>, 1994; 76 (3): 362-370. [doi:10.2307/1243649] [http://hdl.handle.net/10807/125613]
Efficiency of decoupled farm programs under distortionary taxation
Moschini, Giancarlo;Sckokai, Paolo
1994
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.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.