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PSEs and the Mix of Measures to Support Farm Incomes
Author(s) -
Hertel Thomas W.
Publication year - 1989
Publication title -
world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/j.1467-9701.1989.tb00460.x
Subject(s) - subsidy , economics , negotiation , export subsidy , agriculture , incentive , liberalization , order (exchange) , microeconomics , finance , market economy , ecology , political science , law , biology
SUMMARY AND CONCLUSIONS In summary, the mix of support provided to agriculture does matter when PSEs are to be cut. Across‐the‐board reductions in individual components of PSEs will have different implications for output, exports, land values and employment in different countries. These differences can be systematically related to the type of instruments used to support agriculture. For example, cutting subsidies on an input such as fertilizer can result in greater long‐run reductions in output, exports and employment in agriculture than would cuts in output subsidies (of equal magnitude). These differences may make it attractive for countries engaging in partial liberalization to change the mix of subsidies, even as they reduce their aggregate PSE. In so doing, they may be able to lessen, or even eliminate, some of the deleterious effects of reduced farm support. For example, the United States could maintain the demand for farm labour, while cutting its aggregate PSE in half, by shifting the mix of farm support towards selected input subsidies. By contrast, there appears to be little incentive for substituting export subsidies for output subsidies under the ‘pure’ PSE approach proposed by Professor Tangermann et al. This is because such a switch would have to be accompanied by further reductions in budgetary outlays in order to avoid exceeding the PSE target agreed in negotiations.