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Taxes and Subsidies in Vertically Related Markets
Author(s) -
Desquilbet Marion,
Guyomard Hervé
Publication year - 2002
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/1467-8276.00051
Subject(s) - subsidy , commodity , redistribution (election) , economics , partial equilibrium , microeconomics , production (economics) , european union , public good , government (linguistics) , general equilibrium theory , international economics , market economy , linguistics , philosophy , politics , political science , law
In the framework of a two‐country, two‐good partial equilibrium model where one of the commodities (the bulk commodity) is an intermediate input in the production of the second good (the processed good), we assume that the government wishes to transfer income to both bulk commodity and processed good producers. Our analysis is concerned with efficient redistribution. The instruments are subsidies or taxes, and there is an opportunity cost of public funds. We use the targeting principle to characterize the set of optimal subsidies or taxes applied on both the bulk commodity and the final good in this vertically related market structure. The theoretical analysis is illustrated using the example of cereals (the bulk commodity) and pork and poultry (the processed good) in the European Union.