Munich Personal RePEc Archive

How to Design a Targeted Agricultural Subsidy System: Efficiency or Equity?

Rong-Gang, Cong and Mark, Brady (2012): How to Design a Targeted Agricultural Subsidy System: Efficiency or Equity? Published in: Plos one (2 August 2012)

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Abstract

In this paper we appraise current agricultural subsidy policy in the EU. Several sources of its inefficiency are identified: it is inefficient for supporting farmers’ incomes or guaranteeing food security, and irrational transfer payments decoupled from actual performance that may be negative for environmental protection, social cohesion, etc. Based on a simplified economic model, we prove that there is ‘‘reverse redistribution’’ in the current tax-subsidy system, which cannot be avoided. To find a possible way to distribute subsidies more efficiently and equitably, several alternative subsidy systems (the pure loan, the harvest tax and the income contingent loan) are presented and examined.

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