The Efficiency of Direct Payments versus Tax Reductions under Uncertainty

• Autores: Joan Ribas-Tur, Alois Keusch, Renan-Ulrich Goetz
• Localización: Documents de Treball del Departament d' Economia ( Universitat de Girona ), ISSN 1579-475X, Nº. 8, 2003, págs. 1-11
• Idioma: inglés
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• Resumen

  • This paper analyzes the optimal behavior of farmers in the presence of direct payments and uncertainty. In an empirical analysis for Switzerland, it con¯rms previously obtained theoretical results and determines the magnitude of the theoretical predicted e®ects. The results show that direct payments in- crease agricultural production between 3.7% to 4.8%. Alternatively to direct payments, the production e®ect of tax reductions is evaluated in order to de- termine its magnitude. The empirical analysis corroborates the theoretical results of the literature and demonstrates that tax reductions are also dis- torting, but to a substantially lesser degree if losses are not o®set. However, tax reductions, independently whether losses are o®set or not, lead to higher government spending than pure direct payments.