Abstract
Reforms to agricultural policy have been stalling in OECD economies. In this paper, we quantify the potential for public savings from switching to an optimal transfer system in small open economies. Following the insights from the literature on repeated moral hazard, optimal subsidies are front-loaded, which provides stronger incentives for farmers to transition out of agriculture, compared to the existing policies. In our counterfactual experiments, we find government savings of 6% for Chile, 45% for Japan, 24% for Switzerland, and 51% for Turkey. In addition, optimal subsidies more than double the speed of the transition of employment out of agriculture.
Funding source: California State University East Bay
Award Identifier / Grant number: Summer Research Grant 2020
Acknowledgments
We gratefully acknowledge the Summer Research Grant from the College of Business and Economics at California State University, East Bay that supported this project. We thank two anonymnous referees, Jed DeVaro, Joseph Kuehn, Ryan Lampe and Jung You for valuable comments. Any remaining errors are our own. Authors’ declaration of interest: none.
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Supplementary Material
The online version of this article offers supplementary material (https://doi.org/10.1515/bejm-2021-0065).
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