The Incidence of US Farm Programs
Many economists have argued that all farm subsidies are ultimately capitalized in land values. This chapter shows, both theoretically and empirically, that this is not so, although there is much room for disagreement as to the precise shares that accrue to landowners, farmers, and consumers. A review of econometric models in the literature, multimarket simulations, and the application of a sector model of US agriculture yields a range of results about the share of subsidy payments going to land. The truth probably lies in between the results from the static theoretical models with full adjustment and the general run of the econometric evidence. A significant share of even the so-called decoupled transfers goes to farmers rather than landowners, and both landowners and farm operators receive a significant share of the net benefits from subsidies. In an in-between case, based on 2005 market and policy conditions, for every dollar of government spending on farm subsidies, farmers receive about 50 cents, landlords receive about 25 cents, domestic and foreign consumers receive about 20 cents, and 5 cents is wasted. Additional amounts are wasted collecting the taxes to finance the spending and in administering the policies – perhaps another 20 cents.
KeywordsLand Rent Direct Payment Land Market Conservation Reserve Program Deadweight Loss
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