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OPTIMAL AGRICULTURAL POLICY: SMALL GAINS?
Author(s) -
Ding Kai,
Rebessi Filippo
Publication year - 2020
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12901
Subject(s) - subsidy , economics , redistribution (election) , agriculture , productivity , general equilibrium theory , agricultural productivity , microeconomics , labour economics , macroeconomics , market economy , ecology , politics , political science , law , biology
Agricultural subsidies distort the allocation of workers across sectors, and may keep too many workers in agriculture. We use a general equilibrium model with endogenous sector selection calibrated to the U.S. economy to assess the efficiency loss and redistribution effect of the current transfer system. Eliminating current subsidies has two main effects: (1) small efficiency gains (around 4% of agricultural output) and (2) a corresponding rise in the price of agricultural goods. We find high‐productivity farmers to be the main beneficiaries of the existing policies, although some of the transfers generate a redistribution effect toward low‐productivity agents, which extends beyond the agricultural sector. ( JEL H21, H25, H30, J24, J31, J43)