Working Paper: NBER ID: w1338
Authors: Raaj Kumar Sah; Joseph E. Stiglitz
Abstract: This paper presents an analysis of price reform and of optimal pricing and taxation of agricultural and industrial goods in modern-day LDCs. Our analysis is based on a general equilibrium paradigm with a multitude of goods and income groups. It is consistent with several alternative institutional structures with in the agricultural and the industrial sectors, as well as with alternative hypotheses concerning unemployment and migration of labor across the two sectors.This approach differs substantially from the standard tax literature with regard to the structure of the economy and the set of admissible taxes.The rules of price reform which we derive are quite simple to implement, requiring only the knowledge of observable parameters such as price elasticities of demand and supply. The determination of optimal prices (and taxes) requires, in addition, the relative welfare weights on individuals' incomes and on investment. We show that it is desirable, ingeneral, to levy import and export taxes. Among new results are those presenting conditions under which all of the goods belonging to certain categories (such as all purchased agricultural inputs or all agricultural outputs which are not consumed) should be either taxed or stibsidized.
Keywords: Taxation; Pricing; Agricultural Goods; Industrial Goods; LDCs
JEL Codes: H21; Q18; D58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increasing rural food prices (p) (Q11) | benefits peasants (P32) |
| benefits peasants (P32) | improves government revenues for investment (H54) |
| decreasing urban food prices (q) (Q11) | improves welfare for industrial workers (J89) |
| decreasing urban food prices (q) (Q11) | does not adversely affect peasants (P32) |
| optimal pricing policies (D40) | improved overall welfare (I30) |
| pricing policies (L11) | societal benefits (Z18) |
| elasticity of demand and supply (J20) | moderates effects of pricing policies (E64) |