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Efficient income redistribution for a small country using optimal combined instruments
Author(s) -
Salhofer K.
Publication year - 1996
Publication title -
agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.29
H-Index - 82
eISSN - 1574-0862
pISSN - 0169-5150
DOI - 10.1111/j.1574-0862.1996.tb00387.x
Subject(s) - economics , redistribution (election) , payment , ranking (information retrieval) , redistribution of income and wealth , value (mathematics) , transfer payment , price support , microeconomics , public economics , production (economics) , market economy , welfare , finance , public good , machine learning , politics , political science , computer science , law
In this paper I improve Gardner's surplus transformation curve framework by assuming that governments are able to vary many policy instruments simultaneously instead of only one. I use my framework to find the combination of the currently used instruments which provides the most efficient income redistribution for the Austrian bread grains market. Comparing the most efficient policy with the actual policy reveals that 464 × 10 6 Austrian shillings were wasted. I theoretically compare for a small country the transfer efficiency of every possible pair of the four major agricultural policy instruments: floor price, (production) quota, co‐responsibility levy, and deficiency payments. Without considering the marginal cost of public funds (MCF), deficiency payments cum quota (equal to a fully decoupled direct income support) is the most efficient policy, succeeded by floor price cum quota, and floor price cum deficiency payments. If the MCF is taken into account, the ranking crucially depends on the market parameters, the transfer level, and the value of the MCF. For the Austrian bread grains market, I empirically demonstrate that given the present support level, a fully decoupled direct income support redistributes income most efficiently as long as the MCF is lower than 1.17. Beyond this value a floor price cum quota policy becomes more efficient. A floor price cum deficiency payments policy is never superior to the floor price cum quota.