Agricultural Economics Department

 

Date of this Version

4-1-1994

Comments

Published in Journal of Agricultural and Resource Economics 19(2): 327-336. Copyright 1994 Western Agricultural Economics Association. Used by permission.
This is Journal Paper No. J-14813 of the Iowa Agriculture and Home Economics Experiment Station, Ames, Iowa. Project 2998. Support of the North Carolina Agricultural Research Service also is acknowledged.

Abstract

Recent studies have revealed that less developed countries (LDCs) have been taxing their agricultural sectors at rates of 40-50%. This study uses quantity-based general equilibrium measures of deadweight loss to evaluate the cost of these distortions in 18 of these countries. The Allais-Debreu loss measures indicate that from 7–16% of either output or of the agricultural resource base has been wasted due to the associated misallocation of agricultural inputs across these countries. Agriculture is heavily taxed in less developed countries (LDCs), with combined direct and indirect tax rates of 40 to 50% being common. These levels of intervention surely have had significant impacts both on the allocation of resources to agriculture and on the productivity of those resources. This article characterizes the social cost of these distortions in terms of the general equilibrium measures of deadweight loss introduced by Allais (1943, 1977) and by Debreu. Empirical estimates of these deadweight losses are derived for 18 developing countries over the period 1960 through 1984. The interventions to which losses are attributed include sector-specific policies and general trade and exchange rate policies.

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