Agricultural Price Distortion and Stabilization : Stylized Facts and Hypothesis Tests

This paper describes agricultural policy choices and tests some predictions of political economy theories. It begins with three broad stylized facts: governments tend to tax agriculture in poorer countries, and subsidize it in richer ones, tax both...

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Bibliographic Details
Main Authors:	Masters, William A., Garcia, Andres F.
Format:	Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2017
Subjects:	AGRICULTURAL OUTPUT AGRICULTURAL PRICE AGRICULTURAL PRICES AGRICULTURE BARRIER BARRIER TO ENTRY BARRIERS TO ENTRY BENCHMARK CAPITAL ACCUMULATION CHECKS AND BALANCES COLLECTIVE ACTION COMMODITIES COMMODITY COMPARATIVE POLITICAL ECONOMY COMPETITIVE MARKET COMPETITIVE MARKETS CONSUMERS COUNTRY FIXED EFFECTS DATA QUALITY DEMAND DEPOSITS DEMOCRACY DEMOGRAPHIC DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DOMESTIC PRICE DOMESTIC PRICES ECONOMIC CONDITIONS ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC THEORY EMPLOYMENT EXCHANGE RATE EXPENDITURE EXPORTS FISCAL POLICIES FOOD PRICE FOOD PRICES FOREIGN CURRENCY FREE TRADE GDP GDP PER CAPITA GOVERNMENT INTERVENTION GROSS DOMESTIC PRODUCT PER CAPITA GROWTH RATE HOME MARKET IMPORT QUOTAS INCOME INCOME LEVELS INCOMES INCUMBENT INTERNATIONAL TRADE LABOR FORCE LIBERALIZATIONS LOCAL CURRENCY LOW-INCOME COUNTRIES M2 MARKET FAILURES MARKET PRICE NATIONAL INCOME NATURAL RESOURCE OPPORTUNITY COSTS PARTICULAR COUNTRIES PARTICULAR COUNTRY PER CAPITA INCOME POLITICAL ACTIVITY POLITICAL ECONOMY POLITICAL INSTITUTIONS POLITICAL POWER PRICE CHANGES PRICE DISTORTION PRICE DISTORTIONS PRICE LEVELS PRICE POLICY PRICE STABILITY PRICE STABILIZATION PRICING POLICY PRIVATE INVESTMENTS REAL GDP REAL GROSS DOMESTIC PRODUCT REAL INCOME RENT SEEKING RENT SEEKING BEHAVIOR RENTS SAVINGS SOCIAL COST SPECIALIZATION SPREAD TAX TAX RATES TAXATION TRADE POLICIES TRADE POLICY TRANSACTION COSTS TRANSITION ECONOMIES VALUE ADDED WORLD DEVELOPMENT INDICATORS WORLD TRADE
Online Access:	http://documents.worldbank.org/curated/en/118971468330890828/Agricultural-price-distortion-and-stabilization-stylized-facts-and-hypothesis-tests http://hdl.handle.net/10986/28175

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Summary:	This paper describes agricultural policy choices and tests some predictions of political economy theories. It begins with three broad stylized facts: governments tend to tax agriculture in poorer countries, and subsidize it in richer ones, tax both imports and exports more than nontradables and tax more and subsidize less where there is more land per capita. We test a variety of political economy explanations, finding results consistent with hypothesized effects of rural and urban constituents' rational ignorance about small per person effects, governance institutions' control of rent seeking by political leaders, governments' revenue motive for taxation, and the role of time consistency in policy making. We also find that larger groups obtain more favorable policies, suggesting that positive group size effects outweigh any negative influence from free ridership, and that demographically driven entry of new farmers is associated with less favorable farm policies, suggesting the arrival of new farmers erodes policy rents and discourages political activity by incumbents. Another new result is that governments achieve very little price stabilization relative to our benchmark estimates of undistorted prices, and governments in the poorest countries actually destabilize domestic prices.

Agricultural Price Distortion and Stabilization : Stylized Facts and Hypothesis Tests

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