1 / 18

AGEC 640 – Dec. 2 nd , 2014 Hypothesis Tests Regarding Agricultural Policy

AGEC 640 – Dec. 2 nd , 2014 Hypothesis Tests Regarding Agricultural Policy. Seven specific hypotheses regarding policy failure. Masters and Garcia test for standard explanations: Rational ignorance when per-person effects are small

macon-dyer
Download Presentation

AGEC 640 – Dec. 2 nd , 2014 Hypothesis Tests Regarding Agricultural Policy

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. AGEC 640 – Dec. 2nd, 2014Hypothesis Tests Regarding Agricultural Policy

  2. Seven specific hypotheses regarding policy failure Masters and Garcia test for standard explanations: • Rational ignorance when per-person effects are small • Free ridership when groups of people are large (versus more political support from larger groups) • Rent-seeking by unconstrained incumbents (versus checks-and-balances from institutions and markets) • Revenue motives for cash-strapped governments • Time consistency of policy when taxation is reversible but investment is not (as opposed to simultaneous choices) • Status-quo bias from loss aversion or conservative social welfare functions in politics • Rent dissipation from the entry of new farmers (as opposed to free riding among existing farmers)

  3. Results:A new view of the development paradox National average NRAs by real income per capita, with 95% confidence bands Net taxation of consumers NRA>0 Tests aim to account for nonlinearity in these lines, and also dispersion around them, as well as the NRA-income relationship itself ≈$5,000/yr Export taxes with import restrictions = anti-trade bias NRA<0 Net taxation of farmers (≈$400/yr) (≈$3,000/yr) (≈$22,000/yr) Notes: Each line shows data from 66 countries in each year from 1961 to 2005 (n=2520), smoothed with confidence intervals using Stata’s lpolyci at bandwidth 1 and degree 4. Income per capita is expressed in US$ at 2000 PPP prices.

  4. Results:A new view of policy change over time Average NRAs for all products by year, with 95% confidence bands Increased taxes on consumers in 1990s Heavy taxes on farmers in 1970s then reform Heavy taxes on consumers in the 1980s, then reform

  5. Results:A new view of policy change over time Average NRAs for importables and exportables by year, with 95% confidence bands Trend away from taxes on exports, with rising import restrictions Heavy taxes on exports in 1970s then reform with varied import restrictions

  6. Results: The stylized facts in OLS regressions Table 1. Stylized facts of observed NRAs in agriculture The development paradox The resource curse Some regional differences Anti-trade bias

  7. Results:Specific hypotheses at the country level Table 2. Hypothesis tests at the country level • More protection when per-person costs are small • More financial depth, less protection Revenue Motives Rational ignorance Number of people(i.e. free-ridership) Governance • Reject this H • Better governance, less protection

  8. Results:Specific hypotheses at the product level Table 3. Hypothesis tests at the product level • Crops with more sunk costs are taxed more Time consistency Status-quo bias • Policy changes try to reverse prior year price changes

  9. Results:How much stabilization is achieved? Stabilization index over the 1961-2005 period, by income level When stabilizing, SI>0 SI<0 if gov’t is destabilizing Not much! Many governments actually destabilize prices(although M&G don’t have a strong counterfactual story for comparison)

  10. Results: Richer countries stabilize more Table 4. Determinants of the stabilization index Another development paradox? Exportable crops and land-abundant countries have less stabilization Asia has more imports and less land, which explains high stabilization

  11. More results: Since 1995, policies have moved closer to free-trade prices National average NRAs by income level, before and after the Uruguay Round agreement Shift to flatter curves post-Uruguay, closer to zero

  12. Low-income Africa taxes farmers less, Higher-income Asia taxes consumers less National average NRAs by income level, before and after the Uruguay Round agreement Pro-farm reforms in lower-income Africa Pro-consumer reform in higher-income Asia

  13. There has been less improvement in E. Europe-Central Asia or Latin America National average NRAs by income level, before and after the Uruguay Round agreement Less reform – lines are more similar

  14. The biggest change has been in high-income countries National average NRAs by income level, before and after the Uruguay Round agreement US, EU and Japan: reforms and WTO commitments But recent events could change the pattern: …will a return of high food prices cause policy reversals?

  15. Some conclusions • Three stylized facts help explain policy choices: • A development paradox from taxing farmers to taxing consumers as incomes rise • An anti-trade bias from taxation of both imports and exports • A resource abundance effect against natural resources • Three mechanisms help explain the income effect: • Rational ignorance when per-person costs are small • Improved governance from more checks and balances • Revenue motives for import taxes when financial systems are deeper

  16. More conclusions • Four other mechanisms help add to the income effect: • More people in the sector leads to more favorable policies • Crops with more sunk costs (perennials) are taxed more • Policy changes try to reverse the last year’s price changes • Two widely-held views are not supported: • Policy changes do not try to reverse changes in area planted • Policy provides little price stabilization in poor countries

  17. Finally… • Policy relationships have changed over time • Relative to income levels, prices are now much closer to free trade than in the past, especially in Africa, Asia and the high income countries. • The recent move to freer trade could be reversed • In particular, a return of 1970s-style food prices could easily cause a return to 1980s-style food policies. • Policy outcomes are far from predetermined! • The models explain less than half of the total variation.

  18. …and some overall conclusionson Political Economy • Theory gives us several powerful insights: • markets fail, so collective action can help raise incomes • any of the three kinds of instruments can work (regulation, taxation or enforcement of property rights) • whether observed policies actually raise incomes depends on the ability to create, inform and enforce those policies… (success or failure of policy depends on technology, local institutions) • The empirics reveal a few clear stylized facts: • observed policies typically • provide concentrated benefits & cause diffuse losses (perhaps explained by rational ignorance, etc.) • protect against decline more than promoting growth (perhaps explained by loss aversion, uncertainty of who would gain, etc) • both kinds of asymmetry contribute to what we see • between agriculture & other sectors • within agriculture

More Related